Solo 401k for Small Business Owners: REITs Vs Physical Real Estate Investments

Financial safety is a very important yet often ignored goal in the average households. For small business owners and entrepreneurs, it is equally important to ensure the finance safety of your family. One of the best ways to ensure financial stability is to invest in real estate. Solo 401k offers a perfect platform for self-employed individuals to allow tax-free gains.

What is a 401k Account

What is a 401k Account


There are several ways of investing in real estate and buying physical property is the most popular one. However, it does require a substantial investment in the form of down payment and other ownership charges. A Solo 401k for small business owners could do the trick for you. Solo 401k retirement plans are designed to offer small business owners the financial freedom that they never had in the past. It offers participants loan and you have the freedom to invest in any asset type as per your understanding. If you are purchasing an investment property, you can finance it through Solo 401k.

For some investors, investing in physical real estate could be a difficult choice. If you are facing similar challenges, starting with REIT investments could be an option for you.

Invest in Real Estate with Solo 401k: Choosing between REITs and physical properties


One of the primary benefits of REITs is their easy investment process and exit strategy. You can buy shares of publicly traded REITs much like any other stock investments. On the other hand, cashing out a physical property takes time and you might have to wait for several months. As per, it took an average of 5 weeks to sell a property in 2013 and it is likely to differ according to the market situations.

With REIT in your Solo 401k retirement plan, you will have additional liquidity in your investment portfolio.

Capital Investment

Physical properties require large capital investments whereas one can start REIT investments with a much smaller amount. For an instance, a property worth $400,000 would require a down payment of $80,000 for a favorable loan. On the contrary, you can start investing in REITs with as low as 1,000 shares. Solo 401k offers capital investment for both the asset classes and all you need to do it to write a check. However, make sure that any capital gains or dividends should find their way back to the Solo 401k account only.

Portfolio Diversification

Buying a physical property limits you to a particular property type such as residential or commercial property. In case of a downturn, you are likely to incur losses. On the other hand, REITs invest in wide variety of properties including apartments, office buildings hotels, and residential properties. Your investment is safe with lower risks and higher potential for gains.

Maintenance & Management

REITs have teams of professionals who are dedicated towards the maintenance and management of their properties. You can rest assured that your investment is in the best hands. On the other hand, a physical property requires regular maintenance and you have to bear all the maintenance costs.

Some experts might complain over the management fees of REITs but these are generally lower than property maintenance costs.

If you are trying to move towards financial stability, a Solo 401k plan is the perfect instrument for you. Start a Solo 401k for small business owners and build an investment portfolio of your choice.