A self-directed IRA and solo 401K can be great real estate tools to build wealth. This is why I asked Dmitry Fomichenko to write a guest post for Real Estate Finance HQ readers.
Invest in Real Estate with Self-Directed IRA and Solo 401k
If you are a real estate investor, you know it is a great alternative to the stock market, offering secure and predictable returns. Most real estate investors, however, still have their retirement funds invested mainly in stocks, bonds, and mutual funds. Leaving their retirement funds in the hands of a third party custodian or some money manager, investors have little to no control over their life savings. This does not have to be the case, as real estate investors are now able to go with a self directed retirement plan instead, such as Self- Directed Solo 401k and Checkbook IRA.
Real Estate as Investment Option
Often, real estate investments are long-term, which is a perfect fit for a retirement portfolio. Investors can hold a property in their self directed retirement account. Over the years, they can count on capital appreciation for a healthy profit. During the hold time, the property is rented out and provides another stream of passive income for the retirement account.
Another strategy investors often choose is flipping houses. This is also possible with a Self-Directed Solo 401k or Checkbook IRA. After purchasing an investment property with their retirement account, investors can use their retirement funds to renovate the property. Once the house is fixed up, it can be sold for a quick profit.
The biggest advantage of investing in real estate is that it adds more security to your retirement portfolio. Investing solely in the stock market can put your retirement portfolio at risk. With real estate investments, you have the ownership in tangible property.
Self-Directed IRA and Solo 401k
Knowing these benefits of real estate investments, many investors still have the majority of their retirement funds invested in a risky stock portfolio, or some low-return target fund. The reason is simple: many of us are convinced by investment companies that these are the only options for retirement plans.
The truth is, real estate, among other non-traditional assets are actually allowed with a self directed retirement plan, such as Self-Directed IRA or Solo 401k. Using these investment vehicles account holder, for example, can hold any type of real estate assets in their retirement account, including properties, raw land, notes, trust deeds and others. In addition, plan holders have the option to use non-recourse financing to leverage their investment. Both plans can come with Checkbook control. This means instead of getting approval from a custodian before making any move, investors can now make decisions on their own without delay. This also saves them thousands of dollars in transaction fees or other
Overall, adding real estate to a retirement portfolio is a great way to diversify the risks while securing a reliable source of income. While this is not possible for traditional retirement plans, it is certainly permissible with a Self-Directed Solo 401k and Checkbook IRA.
Dmitriy Fomichenko is the founder and president of Sense Financial Services LLC, boutique financial firm specializing in self-directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker.