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Fund Your First Hays 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 one of the bigger challenges is securing funds for a down payment. However, the answer might be easier than you first thought. Accessing the funds you need so you can invest in real estate may not be that difficult. You may be able to fund a rental property purchase in Hays by using your 401(k) plan or an Individual Retirement Account (IRA) if you have them. What’s more, if you plan carefully, you can use a retirement account to fund an investment in real estate, and it 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 savings account with tax advantages you can benefit from if certain IRS regulations are followed. Sometimes, these retirement savings accounts are self-directed. That means that you can choose how to invest the funds in the account. For example, a self-directed 401(k) can be placed in mutual funds, bonds, and much more. Nonetheless, the law prohibits direct investment into real estate from a 401(k). So, to get your 401(k) funds, there are a few more things you’ll need to do.

To use a 401(k) to invest in real estate, you basically have two options. First, to take a loan against your retirement account, or second, transferring the funds in your 401(k) to an IRA account. The difficulty when it comes to taking a loan against a 401(k) is that it might result in those funds being taxed. Most investors would rather avoid paying unnecessary taxes. For this reason, it would be more advantageous 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 process is something your IRA custodian should know. Then, when its time to purchase your residential rental property, you’ll need to submit a direction of investment form and get it approved. When the form is approved, you can request the funds needed to finalize the purchase. To accomplish this, the name of your IRA must appear on the title of the property. This permits your custodian to issue funds. You would then be an investment property owner through your IRA account holder.

Because of the way the ownership structure is set up when you use an IRA, all ongoing expenses and revenue from the rental property would need to be coursed through your IRA custodian account. This also means 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 choosing this method is that these funds aren’t taxed right away. Instead, the tax liability is pushed back to future use of the funds.

Another thing you should know when investing in real estate through a self-directed IRA is that you aren’t able to manage your rental property by 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. However, by no means is this a limitation; this method 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 come with the stability and potential that residential real estate has to offer. When you join up with Real Property Management Alamo, 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 deal with everything, including the ordinary everyday tasks, leaving you free to expand your investment portfolio into complete financial freedom. Contact us or call us at 210-600-5672 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.