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Fund Your First Vinton 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 one of the bigger challenges is securing funds for a down payment. 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 can use your 401(k) plan or an Individual Retirement Account (IRA), if you have them, to fund a rental property purchase in Vinton. Additionally, if you do 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 savings account with tax advantages you can benefit from if certain IRS regulations are followed. In certain circumstances, these retirement savings accounts are self-directed. Self-directed means you can choose how to invest the funds in the account. For example, a self-directed 401(k) can be used to invest in mutual funds, bonds, and much more. Nonetheless, the law prohibits direct investment into real estate from a 401(k). So, to be able to use your 401(k) funds for this purpose, you’ll need to take some 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 issue with taking a loan against a 401(k) is that it might end with those funds being taxed, which is something most investors would rather avoid. This is why the better course of action 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 get the services of 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). Your IRA custodian should be familiar with this procedure. Then, when you’ve located your residential rental property and are ready for the purchase, you’ll need to submit a direction of investment form and get it approved. As soon as it’s approved, you can request the funds you need to complete the purchase. To make this happen, the name of your IRA must appear on the title of the property, permitting your custodian to issue funds. You would then be an investment property owner through your IRA account holder.

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. Any proceeds from the eventual sale of your investment property are also included. When you sell a rental home that was purchased with an IRA account, the proceeds from the sale must remain in the IRA account. This process gives your funds the benefit of deferred tax liability. You will not get taxed until you use the funds in the future.

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 will have to hire a professional property management company such as Real Property Management to take charge of the ongoing operations of the rental property. However, this shouldn’t be viewed as a limitation because this strategy 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 have the stability and potential that residential real estate has to offer. When you work with Real Property Management Colonial, you will receive assistance for your investment activities from a comprehensive and professional team of property management of professionals. We will do everything including the time-consuming tasks that come with rental homes. This will free up your time so you can focus on growing your investment portfolio and reaching financial freedom. Contact us or call us at 540-595-7411 for more information.

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