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Fund Your First Orlando 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 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 Orlando. 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 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 some tax advantages if certain IRS regulations are followed. In certain circumstances, these retirement savings accounts are self-directed. Self-directed means 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. Be that as it may, 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. When you take out a loan against a 401(k), it may result with those funds being taxed. Investors would rather avoid this if possible. 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 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). This is something your IRA custodian should know how to do. Then, when you’ve spotted your residential rental property and are prepared to buy it, you’ll need to submit a direction of investment form and get it approved. When it’s approved, you can request for the funds that you need to finish the purchase process. To make this happen, the name of your IRA must appear on the title of the property, permitting your custodian to issue funds. You would then be an owner, by way of your IRA account holder, of 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 would include 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. This process gives your funds the benefit of deferred tax liability. You will not get taxed until a future use of the funds.

Another important thing that you have to be aware of when you use a self-directed IRA to invest in real estate is that you are not able to manage your rental property yourself. Instead, you will need to hire a professional property management company such as Real Property Management to administer the rental’s operations. However, this shouldn’t be viewed as a limitation because this strategy 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 have the stability and potential that residential real estate has to offer. When you engage the services of Real Property Management Freedom, 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 do everything including the time-consuming tasks that come with rental homes. This will free up your time so you can focus on growing your investment portfolio and reaching financial freedom. Contact us or call us at 813-867-2667 for more information.

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