Self 401k Retirement Plans: Best Time to Invest in Rental Properties

Are you a real estate enthusiast awaiting the right time to join in the investor bandwagon? If yes, this might just be the perfect time to invest in rental properties, as shown in a study conducted by the Joint Center for Housing Studies of Harvard University. According to this study, home ownership in the U.S. is at its lowest level since 1967 with 63.4% homeowners in 2015. Experts are predicting an unanticipated change in the housing industry, with the number of renting households growing over the next few decades. Further, according to the quarterly rental vacancy rates’ report from the U.S. Census Bureau, vacancy rates were at their lowest levels in the third quarter of 2015 at 7.3% in the corresponding quarters of at least past two decades, reaffirming the above speculation.

If you are a small business owner or a self-employed professional, investing in real estate through self 401k plans such as the Solo 401k could help you maximize your earnings. The Solo 401k plan targets small business owners with no full time employee, except the owner and their spouse. Considering its features, the plan can accelerate wealth creation, while providing support during financial slowdowns.

3 Benefits of using the Solo 401k plan to buy a rental property

Down payment is among the first requirements investors need to gather before purchasing an investment property. On an average, you can expect to pay at least 10% to 20% of the value of the house in down payment, which translates to $20,000 to $40,000 for a $200,000 home. With a self-directed Solo 401k plan, you can tap into your retirement funds to purchase a real estate property under the plan’s name. The only condition is that all the proceeds of the house or income should find its way back to the Solo 401k plan only.

If you have the funds for down payment, in many cases, additional finance is still needed to fund the purchase. For Solo 401k plan owners, the IRS allows funding a real estate purchase through non-recourse financing, offering an additional credit protection in case of a default in future. Last but not least, by redirecting your monthly rental income to the Solo 401k plan, your investment enjoys the benefit of tax-deferred growth. Taxes are applicable only at the time of distribution.

Self 401k investing: Key rules to remember with Solo 401k investing

• All the expenses involved in the maintenance or repair of the property goes from the Solo 401k account only.
• The monthly rental income should come back to the Solo 401k account only.
• The owner or any disqualified person should not benefit directly from the investment property.

If you are ready to make your first rental property purchase, contact a self directed Solo 401k provider and set up a plan for the purchase. Pay attention towards the available features of Solo 401k, including checkbook control, participant loan, and investment choices.