“You make money when you buy.” ~ Unknown
Real estate industry always favors those who are able to sniff out excellent bargains and make money while purchasing the property. Unlike what you might have believed until now, it is possible to spot these properties and start investing like pro, but there is a catch. You should be willing to put in some serious efforts before making real money, and it is quite likely that you won’t hit jackpot on your first deal. If you are a small business owner or self-employed individual working in the real estate industry, 401k for self employed plans can help fund your next purchase. There are several qualified retirement plans such as Solo 401k or Individual 401k that offers real estate investing as an investment option. However, let us focus on the part where you need to put in efforts, and find lucrative properties.
401k for Self Employed: How to Find Real Estate Bargains?
- Real Estate Owned (REO) Properties: You can start with real estate owned (REO) properties, which are usually sold by banking institutions after a failed foreclosure process. In general, these properties do not sell at foreclosures because the minimum asking amount, which includes mortgage, accrued interest, and relevant expenses, is higher than the market value of the property. The banks, hence, remove some of the fees and offer these properties at a discounted price. Adding them in your Solo 401k portfolio could be an excellent bargain, but make sure to do thorough market research and consult experts before purchasing the property.
- Pre-foreclosure Sale: It is common knowledge that sellers facing foreclosure are motivated to buy the property; however, very few investors approach them for a pre-foreclosure sale. These properties are already underwater and chances are that you will find a bargain on these houses.
- Short Sale: Short sales are real estate transactions, under which both the lender and the borrower agree to sell a property for less than the amount owed on the home, avoiding foreclosure. Short sales usually take four to six months in closure, but you can find properties at a discounted price. You will need expert help in structuring the transaction for your 401k for self employed account.
- For Sale By Owners (FSBO): For sale by owners (FSBO) are properties that are sold by the homeowners only, primarily to save real estate agent’s fees. Not all of these properties are bargains, but if you can find one that has been on the market for a long-term, you are likely to find one.
Solo 401k is among 401k for self employed retirement plans that offer financing options to the account holder. These options include buying real estate as an investment, private financing, and non-recourse loan. Once you have found an excellent property, make sure that all the expenses involved in its repair and maintenance go through the Solo 401k account only, and any gains must crawl back to the retirement plan.