Investing in Real Estate With Your Retirement Account

When it comes to investing in real estate, many people assume that they don’t have enough capital to get started. However, they might not know that they have a secret weapon that can help them get started: their retirement account.


No, we’re not talking about simply taking money out of your retirement account and using it to buy real estate. If your employer offers a 401(k), those funds are trapped in your employer’s 401(k) or financial planner’s IRA until you are 59.5 years old. Taking the money out before then can subject you to fines.


Let’s discuss how to use your retirement account as an investment tool to grow your wealth.

Leveraging your retirement account

If you’re looking to maximize growth in your retirement account, real estate can be a great option. In order to get started investing, you’ll need to roll your money from your employer or financial planner’s retirement account into a self-directed retirement account. This is a necessary step mainly traditional 401(k) accounts only offer a limited investment menu of bonds, mutual funds, index funds, stocks, etc.


However, with a self-directed retirement account, you actually get to choose where and how you want to invest your retirement money. A self-directed 401(k) retirement account can be used to invest in a variety of different real estate investments, including rental properties and real estate syndications.


Passive investing through a real estate syndication can be a good place to invest your 401(K) funds, as they require minimal participation and thus are hands-off investments.


Setting up a Self-Directed Retirement Account

The first step is to identify a financial partner that offers self-directed accounts. These companies are known as custodians, and they are typically very helpful in identifying what type of self-directed account is best for you and facilitating paperwork to do the rollover. Self-directed accounts allow you to invest in a wide array of assets such as real estate, precious metals, foreign currencies, private loans, cryptocurrencies, and commodities.


Keep in mind that investors in these accounts are willing to assume more risk and potentially earn much higher returns. Which is why they aren’t for everyone. They require a lot of research and investment knowledge well beyond the capacity of most investors. Plus, unlike traditional retirement accounts that are relatively straightforward to set up and manage, a self-directed account can be complicated to invest in. For this reason, it is vital to work with an accredited self-directed company that has experience in this area to help guide you through the process.


Benefits of diversifying your retirement funds


For many people, real estate is a great way to build long-term and even generational wealth. Below are some of the biggest benefits of using your retirement funds to invest in real estate:


1. You have more control with real estate: Assets like stocks are impossible for you to control. Even worse, your entire retirement could be at risk if there is a financial disaster like the 2008 Great Recession or the 2020 Covid Pandemic. Real estate, on the other hand,  is a tangible asset that you own. You can determine how much to rent your property for, how to market it, how to improve it, and much more.


2. Real estate is typically more stable than the stock market. Even during recessions, real estate tends to perform very well compared to the stock market. Take a look at the image below that shows the housing market vs. the stock market since the tech bubble. If you invested in real estate in 2000, your money would have grown over time, even during the ‘09 recession. Compare this to stocks which dipped significantly during that period. This is important because real estate can help you weather any market turbulence and still come out ahead in the long run.


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3. Real estate offers significant tax breaks. You can deduct several expenses associated with owning real estate, including property taxes, mortgage interest, property insurance, and more. Also, if you sell your property for more than you paid for it, the gain you realized won’t be taxed as income.


4. Cash flow: Real estate can also be used to create monthly cash flow, in addition to appreciating in value over time.


Final thoughts

Real estate offers tons of benefits that make it one of the most consistently attractive assets. However, a major issue that prevents people from getting started is that it can require more upfront capital than buying a stock or bond. If this is the case for you, then you might actually have all the funds you need to be tied up in your retirement account.


By setting up a self-directed retirement account, you can gain more control over your retirement goals by buying real estate.


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Sachin Maskey is a physician, real estate investor, philanthropist, and entrepreneur. He has over 17 years of expertise in the medical industry as a family medicine specialist. Outside of medicine, he is the founder of the commercial real estate investment firm Avatar Equity as well as the Dhana Yoga Foundation. You can follow along with Sachin on Instagram, Facebook, Twitter, TikTok, and LinkedIn.

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