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Posted over 8 years ago

Solo 401k for Sole Proprietors: Is it wise to include real estate?

“It’s tough to make predictions, especially about the future.”

~ Lawrence Peter “Yogi” Berra

The real estate bubble burst in 2008 did more harm to commercial real estate than anything else did. It triggered multiple concerns over real estate investments. Even with the improvement in real estate prices in 2015, many people still hesitate before adding real estate in their retirement portfolio.

As an asset class, real estate has had a large setback in the past couple of years. However, according to experts, with proper planning and attention, real estate can offer long-term returns. People often consider stock investments as the largest asset class in the market. According to Matthew Yglesias, author of The Rent is Too Damn High, commercial real estate in the U.S. was worth $20 trillion in December 2013, which is the same as that of publicly traded stocks in December 2013.

Stock market investments may offer better liquidity and are comparatively easier to manage but real estate can equally match their growth with less risk. Real estate can be an excellent option for your Solo 401k for sole proprietors.

"The major fortunes in America have been made in land."

~ John D. Rockefeller

Holding investments in physical property is an exciting and demanding proposition. The property owner is responsible for taking care of the maintenance and come up with several costs associated with it. It may discourage people with limited time and resources. Solo 401k for sole proprietors could be the answer to your questions. You can invest in real estate with Solo 401k retirement plan. Unlike physical properties, real estate investment trusts (REITs) can fit in your Solo 401k portfolio and require less participation from your end.

Real estate investment trusts were established in 1960 to allow average investors to invest in income-generating real estate. As per the records of FTSE NAREIT, US Equity REITs had net market capitalization of $605 billion in 2014. The U.S. stock market has over 157 equity REITs and you can choose one that fits your earning requirements.

REITs own investment properties including hotels, apartments, and office building that can offer regular rental income. Some of these trusts own mortgages for regular income. They offer higher liquidity and operate transparently. In fact, REITs offer better yields and their total returns in 2014 stood at 27.2%, as reported by FTSE NAREIT ALL REITs Index.

The Solo 401k offers an excellent opportunity to invest in real estate investment trusts. One can add REITs in retirement portfolio and manage them with ease. It is among one of the very few retirement plans that allow investing in real estate. It is important to ensure that the Solo 401k provider offers investment in different types of asset classes including REITs. The best part of investing with Solo 401k retirement plan is that you will also enjoy the tax-deferred or tax-free gain. 



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