How to Redirect Retirement Funds into Real Estate Investments
After gradually building your IRA and 401k over decades, many people are looking for a way to diversify investments to include something other than the usual stocks, mutual funds, and CDs. Self-managed retirement funds allow you to diversify, enhance your gains, and minimize risk by continuing to defer taxes until later.
Investing in, upgrading, and selling real estate can yield a higher tax-deferred income than more traditional retirement investments. With guidance from an experienced and proven real estate professional, you may invest and enjoy above-market returns within six months.
The first step is to consult a qualified attorney or accountant to create a separateIRA custodial account. Though there is a fee for a custodian to oversee compliance, the funds remain self-directed. By following IRA rules, you may transfer funds from your Traditional IRA or 401k into the new custodial account fairly quickly.
As with any retirement fund, the money and any gains that you may enjoy will remain tax-deferred until you withdraw them for personal use in the future.
You may not invest in property that you already own or will become your personal residence. You may invest in rental properties, but all rents must stay in the custodial account to remain tax deferred.
Work with a Proven Real Estate Investment Company
Proven professionals like The DeVinney Group understand the market and have experience in targeting properties with potential. They analyze the demographics and current market trends to know which properties are in demand.
In any year, active real estate investing with retirement funds can provide a higher return than the typical stock or bond mutual fund.
The key component is the value that you add to the property.
Suppose you purchase a property with potential for $90,000. The house needs some upgrading to improve marketability, so you invest another $30,000 for a total of a $120,000 cash investment. Within a few months, you might sell the upgraded property for $140,000, a price that represents a $20,000 or 16.7% tax-deferred gain on the $120,000 cash investment.
The principal and profit are returned to the custodial account until you reinvest.
If you make a similar investment in the same year, your original $120,000 would grow to $160,000, a whopping 33.33% annual return on your investment!
That’s far better than a 0.5% gain on a CD IRA.