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Fund Your First Windermere 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 finding the funds for a down payment can feel like an overwhelming challenge. 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. You may be able to fund a rental property purchase in Windermere by using your 401(k) plan or an Individual Retirement Account (IRA) if you have them. 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 making use of the money you currently 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 some instances, these retirement savings accounts are self-directed. What that means is that you can choose how to invest the funds in the account. For instance, you can invest in mutual funds, bonds, and much more by using a self-directed 401(k). Having said that, the law prohibits direct investment into real estate from a 401(k). So, in order to get to your 401(k) funds, you will need to go through a few additional steps.

To use a 401(k) to invest in real estate, you have two options. You may take a loan against your retirement account or you may transfer the funds in your 401(k) to an IRA account. The concern that arises when you take a loan against a 401(k) is the tax. This is because doing this may end with the funds being taxed, and that is surely something that investors would rather avoid. Because of this, the better route is 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 arrange for a self-directed IRA, you’ll need to go through 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). This is a process that your IRA custodian should be familiar with. Then, when you are prepared to purchase your residential rental property, you’ll have 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 so, the name of your IRA must appear on the title of the property. This gives your custodian permission to issue funds. You would then be an owner of an investment property through your IRA account holder.

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 also includes any proceeds from the eventual sale of your investment property. 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 referred 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’ll be required to hire a professional property management company such as Real Property Management to handle the daily 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 join up with Real Property Management Southland, you are getting the services of a comprehensive and professional team of property management professionals that work for your best interests. We will assist you in your investment activities. 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 562-270-1777 for more information.

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