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Fund Your First Harlan Ranch Rental Property with a Self-Guided 401(k)

Model House and Cash in a Miniature Shopping CartInvesting in residential rental properties is safe and profitable but securing the funds for a downpayment can sometimes seem like a giant hurdle. However, accessing the funds you need may not be as hard as you imagined. There are some easier ways to get what you need to invest in real estate. If you have them, you can use your 401(k) plan or an Individual Retirement Account (IRA) to fund a rental property purchase in Harlan Ranch. In addition to that, if you plan it wisely, using a retirement account to fund an investment in real estate could result in little or no tax implications. By taking advantage of the funds that you already have, you can invest in a much more profitable future now.

An IRA or 401(k) is a long-term saving account with some tax advantages for you if certain IRS regulations are followed. In certain cases, these retirement savings accounts are self-directed, meaning you can choose how to invest the funds in the account. For example, you can make an investment in mutual funds, bonds, and much more by using a self-directed 401(k). Notwithstanding, the law prohibits direct investment into real estate from a 401(k). So, to be able to use your 401(k) funds for this purpose, you’ll need to take some additional steps.

To use a 401(k) to invest in real estate, you have two choices. The first choice is to take a loan against your retirement account, and the second choice is to transfer the funds in your 401(k) to an IRA account. The issue with taking a loan against a 401(k) is that it might end with those funds being taxed, which is something most investors would rather avoid. Because of this, the wiser strategy would be to transfer your 401(k) into a self-directed IRA. The transfer itself is typically tax-free. In addition, and unlike a 401(k), many IRA accounts can be used for a wide range of investments, including real estate.

To set up a self-directed IRA, you’ll need to deal with an IRA custodian such as Equity Trust, Community National Bank, IRA Services Trust Company, or others. The new IRA account can be funded by using an existing IRA or rolling over a 401(k). Your IRA custodian should be familiar with this procedure. Then, when you’ve located your residential rental property and are ready for the purchase, you’ll need to submit a direction of investment form and get it approved. Once the form is approved, you can request for the funds you need to go through with the purchase. To do this, the name of your IRA must appear on the title of the property. This allows your custodian to issue funds. You would then own, through your IRA account holder, an investment property.

Because of how the structure of ownership is set up when you use an IRA, all ongoing expenses and revenue from the rental property would need to be done through your IRA custodian account. This means that any proceeds from the eventual sale of your investment property are also included. When you sell a rental home that was purchased with an IRA account, the proceeds from the sale must remain in the IRA account. The benefit of this process is that your funds are spared from being taxed immediately. The tax liability of these funds is deferred to when it gets used in the future.

Another thing you must know about investing in real estate using a self-directed IRA is that you are not permitted to manage your rental property yourself. Instead, you will have to hire a professional property management company such as Real Property Management to take charge of the ongoing operations of the rental property. Don’t think of this as a disadvantage or limitation because, in reality, this approach to real estate investing is in line with current business models, where an investment property owner partners with quality professionals to grow their wealth.

There are few investment options that deliver on the stability and potential that residential real estate has to offer. When you work with Real Property Management Platinum, you will receive assistance for your investment activities from a comprehensive and professional team of property management of professionals. We will attend to all the tasks including the mundane ones that eat up so much time. This would give you all the time you need to focus on growing your investment portfolio to reach total financial freedom. Contact us or call us at 559-324-9400 for more information.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.