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Fund Your First Germantown 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 securing the funds for a downpayment can sometimes seem like a giant hurdle. However, the answer might be easier than you first thought. Accessing the funds you need so you can invest in real estate may not be that difficult. You may be able to use your 401(k) plan or an Individual Retirement Account (IRA), if you have them, to fund a rental property purchase in Germantown More than that, if you plan it right, using a retirement account to fund an investment in real estate could result in little or no tax implications. By putting the funds you have to use, you can invest in a much more profitable future now.

An IRA or 401(k) is a long-term savings account that can give you the benefit of some tax advantages, provided 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, you can make an investment in mutual funds, bonds, and much more by using a self-directed 401(k). Notwithstanding, the law prohibits direct investment into real estate from a 401(k). So, in order to access your 401(k) funds, you will need to do a few more things.

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 difficulty when it comes to taking a loan against a 401(k) is that it might result in those funds being taxed. Most investors would rather avoid paying unnecessary taxes. For this reason, the more effective approach 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 work 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 process is something your IRA custodian should know. 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 this, the name of your IRA must appear on the title of the property. This allows your custodian to issue funds. So, through your IRA account holder, you would be an owner of an investment property.

When you use an IRA and because of the peculiarities of the ownership structure, all ongoing expenses and revenue from the rental property would need to go through your IRA custodian account. This means that 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.

There is another important thing you have to know when using a self-directed IRA for your real estate investment, and that is you cannot be the one to manage your rental property 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 a limitation; instead, this approach 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 come with the stability and potential that residential real estate has to offer. When you team up with Real Property Management Capital, you know that you will have a comprehensive and professional team of property management experts on your side. We will handle everything, including the mundane and time-consuming hassles. This will leave you free to grow your investment portfolio into total financial freedom. Contact us or call us at 301-869-5001 for more information.

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