by Deb Roberts
In 2009, I decided to put my money where my mouth was, I started investing into real estate with my 401k. As an entrepreneur, my 401k can be self-directed. I wasn’t happy with the results I was getting from a more traditional investment within the stock market, I didn’t feel I had control. I know real estate, and I felt it would be a great way to invest my retirement funds, especially when the housing market was down. I have seen a much greater, and for me more secure return on my investments than I had when my 401k was in the stock market.
As someone who is self-employed, I hire an accountant to advise me as to the maximum amount I can invest into my IRA each year. I always advise talking with your accountant about individual tax issues, he or she will be able to give you your maximum investment amount for your self-directed IRA according to your income each year.
While many people can make very good money in the stock market, I know real estate, I have found it to be much more stable for me. I also like to invest in what I know.
How exactly did I do this?
I use an IRA holding company called Pensco Trust that specializes in these types of self directed investment programs. The IRS has many rules for IRA investments, so I recommend you find a company like Pensco, they can provide you with the IRS rules and regulations.
I would also recommend doing this as a part of a group for a few reasons. The main one is that it is easier to fund these types of investments when you are part of a group. Coming up with the money to buy a house on your own is out of reach for many investors. If you join together with several others it becomes much easier. You want to buy your investment properties with cash.
Your IRA investment will have rules, for example, you cannot live or have any family members live in a property that you have invested in through your IRA. There is a bit of a learning curve involved in this process.
The group has to either hire someone to do the paperwork required or have someone in the group that can do the paperwork properly. In our case, we create an LLC for each property purchased. Each investor provides a certain amount of cash from their IRA which equates to their percentage interest in the property, we purchase mainly condos. Condos are easy because outside maintenance is included in your monthly association dues. We hire a management company to rent the property, collect the rent, and handle the day to day issues for our group. At the end of each year the group manager sends out a statement of the profits according to your interest in the property and taxes are deferred until you start collecting from your IRA.
I believe this is a good way to invest because I believe the housing market is less volatile than the stock market. Currently, it is a little more difficult because the housing market is up, but our group is still looking for a worthwhile investment, especially for entrepreneurs with self-directed 401ks.
Many investors want to get into flipping houses. Flipping a house may not be a good idea for most people right now, because remodeling is so expensive, and the housing market is high. In my opinion, if you plan to flip, it is better to move into the property while you make improvements, then plan to sell it after two years. The reason for this is flipping then selling within one to two years creates a capital gains tax on the property. As a primary residence, profit of $100,000 after two years will not be taxed as a capital gain by the IRS. When selling a home, you will be asked if the property was your primary residence for 2 of the last 5 years, and if you have not sold another primary residence in that time period. Always check with your accountant.
As a long-time real estate agent, I feel the housing market is a great place to invest overall. If you would like more information about this, I highly recommend looking into some investment companies.
Deb Roberts works as a real estate agent in the Upper Valley/Lake Sunapee area of New Hampshire and Vermont. She has been in the business for over twenty years and believes in working with her clients to educate them about the market along with the home buying process before delving into their search. She always wants to make sure that everyone is happy with the end result. If you are looking for a home in the area, her expertise will be a resource you want to have on your side. Contact Deb Roberts at email@example.com for more information.