Home Inspector buys Real Estate using 401K
Yes, I’m a Home Inspector and owner of ARTI Home Inspections LLC. But I’m also a Real Estate Investor who buys Real Estate using 401K funds. Personally, I’ve found there is no better investment from a growth and tax perspective. And with a dreaded downturn in the economy coming soon, this non-traditional approach can be beneficial to other investors looking to maximize their dollars.
Economic Downturn Changed Everything for Real Estate
By the time the economy crashed around 2008, my wife Tina and I already owned investment properties around Pottstown, Malvern, Collegeville and Reading. The downturn in the markets changed the way banks do lending. It also changed the way my wife and I looked at our investments. While real estate values had come down, our rents were actually growing. We realized that real estate was a more stable and tangible investment that we could keep into our retirement years. We decided to focus our investment strategy there instead of the stock market. The problem was we couldn’t rely on banks to finance our deals anymore. The crash made them super cautious, especially with self-employed people like us. We had no choice but to look at non-traditional financing options.
Home Inspector Uses Non-traditional Funds
CAMA Plan is a company we discovered a while back and they told us about investing through our 401K and/or IRAs. We did further research, followed necessary guidelines, and found it was quite easy to setup and do! Within just 2 months, we bought a home, fixed it up and rented it out all while using our own 401K funds. You know what else is great about real estate? Leverage! After renting out our 401K house for a year, we financed it with a specialty bank that does IRA non-recourse loans. We used that money to buyer another home and repeated the same process all over again.
As with anything else, you need to do your due diligence. Have a strategy and educate yourself so you don’t get into trouble later. For instance, understand that investing with your retirement accounts means you (or a company you own) cannot do any work on the property. You also can’t buy or sell the property to a “disqualified” party (such as a parent, spouse, child). Don’t get your transaction or plan disqualified because you didn’t research the rules and process ahead of time!
Additional Benefits to Using a 401K to Buy Real Estate
What’s really nice about using your 401K (or IRA) to buy real estate is the control factor. You control the investment. You find it and control what’s done to that property. And that property is tangible. In what other scenario can you drive up to a home, touch it and say, “yep, that’s my 401K right there!”
Best of all.. using a 401K to buy real estate gives you incredible tax benefits! Like any other traditional retirement account earning income, you don’t pay taxes on that rental income until you retire and start taking distributions. That allows the money to grow tax free in the account and much faster over time. And while you watch your money grow tax free, understand you won’t get the tax benefits of depreciation and expenses in your personal tax return each year. Retirement accounts are a completely separate entity from yourself. Make sure you choose properties that will give you high income as that will be most advantageous from a tax deferred perspective.
With a downturn in the economy around the corner, now might be the ideal time for you to consider moving those 401K and IRA investments from stocks to some smart real estate purchases! This home inspector surely will continue to buy real estate with his 401K.
David Artigliere with ARTI Home Inspections LLC is a home inspector around Reading, Pottstown, Collegeville, Phoenixville and Malvern.
He invests in real estate on the side. He has been in business since 2001.