Grow Your Self Employed Retirement Plan with Real Estate Investing
Real estate is once again on the hot list of investors, as revealed by a Bankrate.com survey, indicating that 27% investors, out of a pool of 1,000 individuals, would prefer real estate investment with the money they won’t need in the next 10 years. For small business owners and self-employed individuals, adding real estate in their self employed retirement plan portfolio is a viable option. Qualified retirement plans such as Solo 401k offer real estate investments along with adequate funding options. You can start with the provision to buy real estate in the name of the account, followed by lending funds for alternative real estate investments, and non-recourse loan for funding the purchase. However, you need a thorough understanding of the real estate industry before adding it in your self employed retirement plan portfolio.
Self Employed Retirement Plan: What are the different types of real estate investments?
- Single Family Homes: For most of the first-time investors, single family homes offer a perfect entry into the real estate industry. You can start with a duplex, triplex, or Quad/four-plex, as these properties are easy to finance, rent, and sell. However, make sure that the property can provide positive cash flow after adding up all the maintenance charges.
- Small Apartment Buildings: If you are a real estate investor or professional, investing in small apartment buildings could serve you well. These properties require a certain degree of expertise in management and are often priced in accordance with their cash flow. Keep in mind that these properties require substantial capital investment and it is best to work with the experts.
- Real Estate Investment Trusts (REITs): REITs are the perfect vehicle for commercial investments, especially if you do not have sufficient funds to own a commercial property. These are pooled investment vehicles that invest in residential or commercial real estate, and distribute their income among the stockholders. It is best to start with U.S. stock-exchange listed REITs, as these are easier to maintain, and offer significant liquidity.
- Commercial Properties: Commercial properties are the ones that are leased to businesses, irrespective of their size or location. These properties are known for their enormous cash flow, however, they also have longer holding periods during dull market, and may stay vacant for months. Unless you have a rich experience in real estate and substantial capital to invest, commercial properties is a risky option.
- Tax Liens and Mortgage Notes: If you want to play it safe or invest passively, tax liens and mortgage notes are the right options to choose. They are easy to maintain and offer regular cash flow, in case of mortgage notes. However, it is important to do the due diligence before you jump into these investment vehicles.