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Using Self Directed IRA’s or 401K’s to Purchase Real Estate

Diversify your nest egg by investing into Oahu real estate, tax free.

Diversify your Retirement Portfolio

Self-directed IRAs or 401Ks are one of the newer growing segments of the retirement funds market, providing a diversification strategy for those seeking options beyond investing in Wall Street. It also appeals to investors who may not understand “small cap” and “mid cap” but do understand that real estate in Hawaii is a solid long-term investment.

For example, you use your self-directed IRA (actually it's a self-directed 401K pension fund) to buy a two-bedroom leasehold condo for $98,000 cash. A few years later, your purchase the fee interest, also with funds from my self-directed 401K pension fund, for a price of $57,000.

For five years, you collect rent every month, and after expenses, the rest of the money goes straight back into your pension fund — tax free, before you sell the unit for $310,000. And because the pension fund owned the property, the gain on the sale was not taxed either.

Many people are unaware of the fact that their IRA or pension fund can invest in alternative assets like real estate because most IRA custodians do not offer real estate as an option.  The options as to what you can buy with your self-directed fund are almost unlimited as there are very few restrictions to things you cannot buy, such as life insurance, and collectibles.

Many people use their self-directed IRA or 401K for diversification purposes and that the majority are moving a portion of their retirement savings into a self-directed account specifically to invest in something other than securities.

Three Step Process

  1. Ask your 401k custodian or the company that holds your IRA if you have a self-directed option. Many do not, in which case you can opt to set up a new IRA with a self-directed IRA company such as New Directions IRA.
  2. Next you need to fund that new account either with an IRA transfer, a direct rollover or with regular contributions.
  3. Decide what you would like to buy with the IRA and instruct the company managing your account to facilitate that investment on behalf of your fund.

There is a specific process and strict IRS rules to adhere to, some of which can be complicated, which is why working with experts is essential.  Contact your agent and financial advisor for crucial advice and to make a financial plan before moving forward.  

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