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Residential & Commercial Real Estate Investments
Buy & Hold, Fix & Flip, Wholesaling, SFR's, Multi-Family, Commercial
INVESTING IN REAL ESTATE WITH YOUR 401K FUNDS
Many individuals are unaware that they can use there retirement funds within a 401K to invest in real estate. First, instead of using traditional bank funds to purchase or finance the purchase of a property or even refinance your current property, you can use your own funds within your 401K to borrow from. Typically borrowing from your own 401K is done at a lower interest rate than from banks. A benefit from borrowing from your own 401K is that your 401K reaps the interest being paid when repaying your 401K back thus the money (interest) accumulates within your own 401K and NOT some bank. Typically funds borrowed from your 401K are required to be paid back within 5 years so your monthly payment could be extremely high which may not be beneficial. And lastly, you are eligible to take a loan amount equal to the lesser of half your account value, or $50,000.
You should also note that if you default on your loan to your 401K, according to IRS rules, you are required to pay the loan back within 60 days of the default or you will be issued a 1099 for the balance of the loan for tax purposes and also be penalized a 10% early withdrawal penalty (with some hardship exclusions - see IRS rules regarding that).
A far better way to use your 401K funds to invest in real estate is to roll your funds (either some or all) into a self-directed IRA, preferably a Roth IRA where the gains will not be taxed however if you do not want to incur any tax at the time you roll over your funds, then a traditional IRA can work (uncle Sam is going to get you one way or another so it is our choice to bite the bullet early and use a Roth IRA as the gains will far outweigh the earlier tax if you continue to re-invest your funds).
SELF-DIRECTED IRA BENEFITS
It's a common misconception among Americans that the only investments allowed in a retirement account are stocks, CDs, and mutual funds because typically large financial institutional custodians are driven in that manner and focus on a narrow universe of investments. While these kinds of accounts may be right for some, they don't offer the kind of financial freedom which a self-directed qualified retirement plan affords the individual investor.The truth is that broader investment options have been available to the general public since 1975,when the IRAs first became available enabling you to contribute funds towards.
Your self-directed IRA can purchase any type of real estate, including single-family homes and multi-unit dwellings, apartment buildings, co-ops, condos, commercial property, and improved or unimproved land. The property can be used to generate income, or for appreciation. There is no time limit as to how long your IRA owns the property either; it can be used as an investment property, a rehab to flip, or to appreciate in value collecting monthly rents.
There are other investment opportunities available within real estate in which you can invest in also. They include: Mortgage Notes, Private Placements as in LLP's or LLC's formed for real estate projects, Tax Liens and Tax Deeds, Trailers/Trailer Parks as well as Commodities such as gold, silver and even livestock, Futures, Stocks, bonds and mutual funds, Hedge funds, Foreign investments, Foreign Currencies, Account Receivables, Equipment Leases, Oil and Gas Rights, Timber and Mineral rights and U.S. Treasury Notes. However we are just concerned with real estate related investments although we want you to know about other financial opportunities that exist.
It is important to understand the difference is that you and your IRA are two separate entities as there are very few differences between purchasing the property as an individual versus purchasing property with your self-directed IRA. Even though you will be making all the decisions, you must remember that your IRA account is the actual buyer/owner of the investment and all paperwork must reflect this as such.
SO HOW DOES IT WORK?
Today many investors are dissatisfied with the low rate of return they are getting from traditional stock market investments and desire to take matters into their own hands which is why you need to work with a good neutral third party company to help you do so. First you need to have this independent financial third party help you to set up your self-directed IRA. They are experts in keeping you and your self-directed IRA functioning safely within IRS rules however they are prohibited in providing any specific investment advice. So when looking for a good firm, make sure you ask them if they bring in speakers whom you can meet to discuss investment opportunities which you can use in your self-directed IRA portfolio. Also note the fees they charge as they do charge a fee to help establish your self-directed IRA and any maintenance thereof which these fees differ firm to firm yet are not extraordinary.
So the general process for establishing your self-directed IRA once you decide on a firm to work with is as follow:
• First decide on the type of plan you want to open with the help of a trusted financial advisor (remember the firm can not provide input)
(examples include: Inherited IRA, Traditional, Roth, SEP, SIMPLE, Individual(K), HSA or ESA)
• Fund your IRA (Transfer/Rollover funds from an existing IRA or 401(k), or make a contribution)
• Select an Investment Option (Choose an investment opportunity for your IRA to purchase)
• Get with your Firm's Representative to prepare things ( Having negotiated the terms of your investment & performed the necessary due
diligence, let your firm's advisor help you with the proper documents to consummate the transaction legally)
• Give the "Proceed" Directive (Submit the required Asset Purchase paperwork based on the investment you’ve selected)
• Complete the purchase/transaction (Per your instructions to purchase the asset the firm provides the funds from your account and
the asset is recorded in your IRA)
• Deposit any profits back into your IRA account as you receive them which will remain FDIC insured.
Remember, your IRA can do anything you can do with the asset; hold it for appreciation, collect rents if applicable, improve the asset, be part of another property investment such as an LLP or LLC, and even sell it down the road. The important thing is that ALL proceeds from the asset be deposited into the IRA account.
HOW DOES LION'S WING REI, LLC WORK WITH ME?
Lion's Wing REI, LLC has experience working with investors and their self-directed IRAs on various real estate projects, typically within an LLC or LLP framework where Lion's Wing REI, LLC has full control of use of funds and full control of any real estate project. You remain as an investor in our projects with full transparency of the project with which you are involved. Lion's Wing REI, LLC may have several real estate projects in process at once of which you may be involved in one or several of them however funds are specifically earmarked towards a single project and funds are never co-mingled even if you are involved in two projects at once for proper accounting & expense purposes.
Funds are usually used in buy, fix and flip where returns are guaranteed to be in the 8% - 15% cash on cash ROI range for each project as the investor ROI is accounted for at the time of determining the project purchase price, rehab expense, carrying expense, selling expense including closing costs, purchase price including closing costs to arrive at the purchase price of the project.
Additionally, funds are used for buy and hold strategies for larger apartment buildings where rents are collected and distributions are made monthly, quarterly or semi-annually depending on the size of the project to the investor.
In any event you will have complete transparency in any project with which you become involved.
*** We will gladly provide recommendations to you for a neutral third party firm to help you get started. Simply email us.
INTERESTED IN INVESTING?
If you are interested in this type of investment opportunity please fill out the form below. ALL of your information will be truly guarded as we do not share any information with anyone including the Federal Government, State Government or any government agency without a court ordered subpoena (just to let you know we take things seriously) unless required to do so under law.
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Lion's Wing REI, LLC 2010 - 2017