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Get a comparative market analysis of your rental property. Start here!

Get a comparative market analysis of your rental property. Start here!

Fund Your First Randolph 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 getting the funds for a down payment often feels like an impassable obstacle. However, the solution may be simpler than you think. It may not be too difficult for you to access the funds you need so you can invest in real estate. You may be able to use your 401(k) plan or an Individual Retirement Account (IRA), if you have them, to fund a rental property purchase in Randolph. More than that, if you plan it right, using a retirement account to fund an investment in real estate could result in little or no tax implications. By using funds that you already have with you, you really can invest in a much more profitable future now.

An IRA or 401(k) is a long-term saving 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 instance, you can use a self-directed 401(k) to invest in mutual funds, bonds, and much more. Although, 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 essentially have two choices. You can either take a loan against your retirement account or transfer the funds in your 401(k) to an IRA account. The challenge when it comes to taking a loan against a 401(k) is the tax burden. That’s because taking out this loan might result in the funds being taxed, and investors would rather avoid that. For this reason, the more effective approach 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 work 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). This is a process that your IRA custodian should be familiar with. Then, when you’ve found your residential rental property and are ready to make the purchase, 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 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, by way of your IRA account holder, of an investment property.

The way the ownership is structured when using an IRA means that all ongoing expenses and revenue from the rental property would have to be made 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 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 important thing that you have to be aware of when you use a self-directed IRA to invest in real estate is that you are not able 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. 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 deliver on the stability and potential that residential real estate has to offer. When you join up with Real Property Management NJ Elite, 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 908-955-7487 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.