Investing your retirement account in real estate

How to Invest in Real Estate with a 401(k) or SDIRA

Leveraging Your Retirement Account By Investing In Real Estate

Investing your retirement account in real estate


Are you seeking ways to diversify your investment portfolio beyond stocks and bonds? Have you considered investing in real estate through your 401(k) or self-directed IRA (SDIRA)?

Investing in real estate, specifically a real estate syndication, allows you to participate in larger, high-quality deals that may not be available to individual investors. It also provides the potential for steady cash flow, long-term appreciation, and tax benefits. However, many investors aren’t aware of the options available to them through retirement accounts.

By the end of this article, you’ll have a solid understanding of what investment opportunities are available with a 401(k) or SDIRA. You will also know how to add real estate to your retirement investment strategy.

What’s the difference between a 401(k) and an SDIRA?

The main difference between a 401(k) and a self-directed individual retirement account (SDIRA) is the level of control and investment options available. A 401(k) is an employer-sponsored retirement plan that typically offers a limited selection of investment options, and the employer often sets rules and restrictions on contributions and withdrawals.

On the other hand, an SDIRA allows the account holder to choose from a broader range of investment options. Although, with this greater control comes greater responsibility, as the account holder must make informed investment decisions and manage the account themselves or hire a custodian.

Types Of Self-Directed Retirement Investments

Real estate is one of the most popular types of self-directed investment options. Compared to traditional retirement plans, self-directed options have the potential for higher returns. This allows investors to purchase shares in a larger property or multiple properties through real estate syndication, generating rental income and long-term capital appreciation.

Other types of self-directed investments include cryptocurrency, private equity funds, venture capital funds, and global markets. Every investor should carefully consider their risk tolerance before investing in any self-directed retirement account.

Why should I invest my retirement plan in real estate?

Investing your retirement plan in real estate is attractive for many investors due to its potential for higher returns than traditional retirement plans. Real estate investments provide a tangible asset with the opportunity for long-term capital appreciation, diversification, and passive income.

Compared to other investments like stocks, mutual funds, and bonds, real estate has the potential to yield higher returns over the long term due to its ability to increase in value over time through inflation and appreciation.

Investment Control

Another reason to invest your retirement account in real estate is that you have the power to manage your assets your way. Flexibility in where you can invest allows you to decide where to put your plan compared to traditional 401(k) plans, which are limited to stocks and bonds. Additionally, real estate can be used as collateral for loans or refinancing if needed.

Tax Benefits

Investing in real estate also provides additional tax benefits that are not available with traditional investments, such as deductions on mortgage interest and depreciation of the property’s value.

And you can earn tax-free income. Yes, you read that right! Because any self-directed IRA investment generated revenue in real estate is returned to the SDIRA account and is exempt from tax. So you can reinvest it over and over. Thus, growing your portfolio faster than you would if you earned less total revenue after taxes. 


Diversified Portfolio

As the saying goes, “Don’t put all your eggs in one basket.” Many retirement advisors encourage everyone to concentrate their investments on bonds, stocks, equities, and cash. So the chances of timely returns are uncertain because you will solely rely on the stock market, which can be erratic.

So investing in real estate is a smart way to diversify away from traditional 401(k) investments.

Benefits of Investing Your 401(k) in Real Estate

Investing your 401(k) in real estate provides many potential benefits. It can provide more consistent returns than the stock market and diversification of investments to reduce risk. Additionally, investing in real estate has the potential to generate passive income through rental income streams and capital appreciation over time.

These accounts allow you to take advantage of the same tax breaks that traditional retirement plans offer. At the same time, it’s also allowing you access to alternative investments such as real estate. With the right strategy, investors can benefit from long-term capital gains, receive passive income streams and diversify their portfolios for reduced risk.

Many individuals prefer to diversify their retirement plans on real estate. That is because it is an excellent method of building wealth in the long term. Real estate investments are tangible and more stable assets, making them more substantial than other investment types, such as stocks or mutual funds. 

Purchasing properties or investing in real estate syndications also allows you to earn from your rental income and increase the property’s value through renovations and improvements. Lastly, putting your retirement fund in real estate gives you tax breaks depending on how your 401(k) is structured. 

How to Roll Your 401(k) into Self-directed Retirement Accounts

Rolling your 401(k) into a self-directed IRA (SDIRA) account is an excellent way to invest in alternative assets such as real estate and other investments without the restrictions of traditional retirement plans. These accounts allow you to take control of your investment decisions and access investments not typically available in employer-sponsored plans.

When rolling over your 401(k), you must choose a custodian for your new SDIRA. The custodian will be responsible for managing the assets. Custodians also ensure that all transactions comply with federal regulations and provide other services. In addition, once you select a custodian, they will help facilitate the transfer of funds from your old retirement plan into your new one.

Once the transfer is complete, you can begin investing in alternative assets such as LLCs, non-public traded companies, mortgages, deeds of trust, partnerships or joint ventures, equipment leasing, and real estate. Real estate investments include syndications, single or multifamily homes, and underdeveloped or commercial properties.

Real estate investment can provide investors great potential for long-term capital appreciation and passive income through rental income streams. However, it’s important to remember that investing carries risk, so do your due diligence before investing any funds.


Considerations when Investing Your 401(k)/SDIRA in Real Estate

When investing your retirement account in real estate, it is crucial to comprehend the risks associated with such an investment. Investing in real estate carries its own unique risks. That could mean fluctuations in market value due to changing economic conditions and possible tenant default on rental payments.

Additionally, many investors cannot take advantage of the tax benefits offered by SDIRAs or solo 401(k)s. That is because they do not meet the criteria established by the IRS. Consideration also needs to be given to the fees associated with investing in real estate. That may include administrative costs, transaction fees, and professional management fees.

Finally, it is critical to understand any regulatory restrictions that may apply to real estate investments and any relevant state or local laws you may need to comply with. Considering all of these factors can help ensure a successful investment experience.

Getting Started with Real Estate Investing

Real estate investing can be attractive for those looking to diversify their portfolios because investing in real estate can potentially generate higher returns than traditional investments. If you want to get started, it is essential to understand the different types of real estate investments available, such as rental properties, flips, and syndications.

Rental properties are a popular choice among investors. Because they provide a steady stream of income while also providing potential capital appreciation over time. Flips involve purchasing distressed or undervalued properties with the intent of reselling them at a higher price. Lastly, syndications involve pooling money from multiple investors. Because it is easier to purchase larger properties that generate greater returns than individual purchases would allow.

When selecting an investment strategy, it is essential to analyze your personal goals and financial situation. Considering the risks associated with each type of real estate investment will also help you weigh your options. It is helpful to seek professional advice from an experienced real estate investor or financial advisor to make good decisions. They can help you weigh each option’s pros and cons that align with your objectives.

Investing in Real Estate Syndications with Us

Investing your 401(k) or SDIRA in real estate syndication can be a smart financial move. By following these steps and doing your due diligence, you can see great returns on your investment. So don’t wait any longer. Start exploring your options and take advantage of our unique opportunity! Grow your wealth through investing in real estate syndications.

Reach out to One River Capital so we can help you understand the investment options you have. We look forward to helping you see how you can add real estate to your retirement investment strategy.