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Fund Your First Garden City 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 getting the funds for a down payment often feels like an impassable obstacle. 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 Garden City through a 401(k) plan or an Individual Retirement Account (IRA). If you have them, then you can use them to get you started. On top of that, if you plan it well, you can use a retirement account to fund an investment in real estate and have it result in little or no tax implications. By taking advantage of the funds that you already have, you can 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. Sometimes, these retirement savings accounts are self-directed. That means that you can choose how to invest the funds in the account. For example, a self-directed 401(k) can be placed in mutual funds, bonds, and much more. Although, the law prohibits direct investment into real estate from a 401(k). So, to get your 401(k) funds, there are a few more things you’ll need to do.

To use a 401(k) to invest in real estate, you basically have two options. First, to take a loan against your retirement account, or second, transferring the funds in your 401(k) to an IRA account. The challenge when it comes to taking a loan against a 401(k) is the tax burden. That’s because taking out this loan might result in the funds being taxed, and investors would rather avoid that. For this reason, it would be more advantageous 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 establish a self-directed IRA, you’ll need to go through 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 an IRA custodian should be able to do for you. Then, when you’ve found your residential rental property and are ready to make the purchase, you’ll need to submit a direction of investment form and get it approved. When the form is approved, you can request the funds needed to finalize the purchase. To accomplish this, the name of your IRA must appear on the title of the property. This permits your custodian to issue funds. You would then own, through your IRA account holder, an investment property.

If you use an IRA and because of how the ownership is structured, you will need to go through your IRA custodian account to make all ongoing expenses and revenue from the rental property. This also means 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 this approach is that there is no immediate tax liability for the funds. Instead, it’s the future use of the funds that get taxed.

Another thing you should know when investing in real estate through a self-directed IRA is that you aren’t able to manage your rental property by yourself. Instead, you will need to hire a professional property management company such as Real Property Management to administer the rental’s operations. However, by no means is this a limitation; this method 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 also have the stability and potential that residential real estate has to offer. When you engage the services of Real Property Management Landmark, you will have a comprehensive and professional team of property management professionals working and watching out for you. We will help you with your investment activities. We will deal with everything, including the ordinary everyday tasks, leaving you free to expand your investment portfolio into complete financial freedom. Contact us or call us at 516-522-2859 for more information.

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