Posted over 4 years ago

What Can You Do With A Self Directed Real Estate 401k?

A self directed real estate 401k investment can provide the diversification you need in your retirement funds. You just have to learn about the different types of investments available. The most common practice is purchasing a leasehold property and collect monthly rent payments.

For those who know how real estate 401k investment works, the Solo 401k self directed plan is the perfect type of retirement plan for real estate investors. This plan is not only designed for non-traditional investment experts, it is also for those who want to take control of their retirement accounts and grow their funds to the maximum potential. With a self directed Solo 401k, plan owners are free to choose the type of assets they want to invest in. Transactions can be completed as simply as writing a check, without going through a custodian.

Real estate investments are tangible and often considered less risky than the stock market. With the self directed real estate 401k, it is possible for plan owners to add real estate assets to their retirement portfolio. The real estate industry has a wide range of investment opportunities.

The self directed real estate 401k could also be used in different types of real estate investments.

  • Commercial real estate – Small office buildings with individual offices that you can lease out to small business owners and companies.
  • Retail real estate – Investing in retail storefronts, strip mall, etc. On top of the rental fee, the investor can also earn a percentage of the tenant’s generated sale depending on the agreement.
  • Industrial real estate – Special purpose real estate investment such as carwash, storage units, etc. Payment from the temporary use of the space by the tenant could generate income to the investor’s self directed 401k real estate investments.
  • Mixed-use real estate – Combination of those mentioned above types of real estate investments.
  • Real estate groups – These are organizations that develop and buy properties. A self directed real estate 401k can own part of the property without the need to manage it directly. Rental from the unit produces income to the 401k plan. A percentage of the investors’ rent proceeds will go to the organization in exchange for the maintenance, works, and finding tenants. In case of vacancies, the group will pool a portion of investors’ rent to pay for the mortgage payments.

Passive real estate investments

  • Mortgage notes : If you’re after passive real estate income , mortgage notes are an excellent option. They offer you the residual income without having to fret about the property management issues.
  • Tax deeds/tax liens: Depending upon the state in which you live, you can purchase tax deeds or tax liens for passive income. However, make sure to inquire about the property and try to have someone visit it personally.
  • REITs: Another way to invest passively in real estate is through real estate investment trusts (REITs). The best thing about REITs is that they have to distribute the major portion of their income to their shareholders.

If you have any questions or comments about investing in real estate with a self-directed retirement plan, leave a comment below.

Related: 5 Warnings To Consider Before Using Your 401k To Invest In Real Estate