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Fund Your First Reno 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, accessing the funds you require may be surprisingly easier than you first imagined. There are some things that you can do to start investing in real estate.  You can fund a rental property purchase in Reno through a 401(k) plan or an Individual Retirement Account (IRA). If you have them, then you can use them to get you started. 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 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 provide some tax advantages, assuming that certain IRS regulations are followed. In certain cases, these retirement savings accounts are self-directed, meaning 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. Notwithstanding, 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, there are two ways to go about it. One way is to take a loan against your retirement account. The other way is by transferring the funds in your 401(k) to an IRA account. The issue with taking a loan against a 401(k) is that you might end up having those funds taxed, which is something most investors would rather avoid. Because of this, the better route is 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 its time to purchase your residential rental property, you’ll need to submit a direction of investment form and get it approved. After it’s approved, you can request the funds needed to complete 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. So, through your IRA account holder, you would be an owner 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. 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. The benefit of going through this particular process is that these funds aren’t taxed immediately. Instead, the tax liability is deferred to the later 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 have to hire a professional property management company such as Real Property Management to take care of the day-to-day operations. However, this isn’t really a limitation because this setup with 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 also have the stability and potential that residential real estate has to offer. When you team up with Real Property Management Corazon, you know that you will have a comprehensive and professional team of property management experts on your side. 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 775-826-1414 for more information.

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