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Fund Your First Van Nuys 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 the biggest challenge is often obtaining the funds for a down payment. However, accessing the funds needed for you to invest in real estate might not be all that difficult. If you have a 401(k) plan or an Individual Retirement Account (IRA), then you may be able to use them to fund a rental property purchase in Van Nuys. What’s more, if you plan carefully, you can use a retirement account to fund an investment in real estate, and it could result in little or no tax implications. By utilizing your existing funds, you can really invest in a much more profitable future now.

An IRA or 401(k) is a long-term savings account that can give you some tax advantages if certain IRS regulations are followed. In specific cases, these retirement savings accounts are self-directed, so you can choose how to invest the funds in the account. For instance, you can use a self-directed 401(k) to invest in mutual funds, bonds, and much more. Be that as it may, the law prohibits direct investment into real estate from a 401(k). So, to be able to access your 401(k) funds, you would need to do a couple more things.

To use a 401(k) to invest in real estate, you have two choices. The first choice is to take a loan against your retirement account, and the second choice is to transfer the funds in your 401(k) to an IRA account. When you take out a loan against a 401(k), it may result in those funds being taxed. Investors would rather avoid this if possible. Because of this, the wiser strategy 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 deal with 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). This is something your IRA custodian should know how to do. Then, when you’ve spotted your residential rental property and are prepared to buy it, you’ll need to submit a direction of investment form and get it approved. When it’s approved, you can request for the funds that you need to finish the purchase process. To do so, the name of your IRA must appear on the title of the property. This gives the green light your custodian needs to issue funds. You would then be an owner, by way of your IRA account holder, of an investment property.

Because of the way the ownership structure is set up when you use an IRA, all ongoing expenses and revenue from the rental property would need to be coursed through your IRA custodian account. This would include any proceeds from the eventual sale of your investment property. When you sell a rental home that was purchased with an IRA account, the proceeds from the sale must remain in the IRA account. The benefit of choosing this method is that these funds aren’t taxed right away. Instead, the tax liability is deferred to the future use of the funds.

Another thing you need to know when using a self-directed IRA to invest in real estate is that you can’t manage your rental property by yourself. Instead, you would need to hire a professional property management company such as Real Property Management to take charge of the rental’s day-to-day operations. However, this isn’t really a limitation because this setup 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 provide the stability and potential that residential real estate has to offer. When you do business with Real Property Management West San Fernando Valley, we will assist you in your investment activities, and you will rest assured that a comprehensive and professional team of property management experts are working for your best interests. We will take care of everything including the day-to-day tasks that eat up a lot of your time. This will free you up to work on the investment portfolio that will lead you to financial freedom. Contact us or call us at 818-727-0100 for more information.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.