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3 min read

Borrowing From Yourself to Invest in Real Estate

Borrowing From Yourself to Invest in Real Estate

The investment landscape is changing — look no further than the rise of the crowdfunded real estate investing or cryptocurrencies such as Bitcoin for proof.

For many people, investing in stocks, bonds and mutual funds is fine. Others, though, want to invest their money in more diversified ventures, such as commercial or residential real estate, startup businesses, precious metals or even oil wells. Cryptocurrencies like Bitcoin, Etherum, Ripple and Litecoin also are more appealing to certain investors than standard Wall Street investments.

Currently, there is more than $30 trillion held in U.S. retirement accounts, typically in the form of individual retirement 401(k)s. However, 97 percent of those funds are placed into traditional investment vehicles such as stocks, bonds and mutual funds. And it’s no secret that corporations offering defined-contribution or sponsored plans usually invest employee retirement funds into their own funds or like funds because they don’t want that money leaving their own investment pool since it generates greater returns for their accounts.

However, your retirement funds can be used in more ways than you know. Investors with money tied up in their retirement accounts have many different avenues for investment through Self-Directed Solo 401(k)s or Self-Directed IRAs.

The Rocket Dollar Account Advantage

Rocket Dollar unlocks the investment power of retirement accounts without the tax penalties associated with early withdrawal by helping investors create and manage a Self-Directed Solo 401(k) account or a Self-Directed IRA account.

Historically, people who pull money out of their retirement accounts early incur significant penalties and lose tax shelters. Tax on distributions made before the age of 59–1/2 is 10 percent additional tax on the distribution, the IRS reports. And although the IRS allows people to borrow up to 50 percent or $50,000 from their retirement accounts, those loans must be repaid within five years.

That can be difficult for real estate investments, which is usually a long-term play.

 Rocket Dollar handles all the filing and paperwork with the IRS to ensure investors maintain the tax breaks they are receiving through their current retirement accounts. Rocket Dollar unlocks the power of a retirement dollars so investors can create more well-rounded portfolios by investing in assets of their choosing.

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“It gives investors options and control to do what they want with their money and follow their own dreams,” says Trey Robinson, the company’s chief marketing officer. “Rocket Dollar allows investors to take their retirement funds and self-direct their investments without losing any tax benefits or incurring any penalties. It gives them access to and control of their money to invest it outside of stocks, bonds and mutual funds.”

21st Century Diversification: Real Estate

The stock market has a long history of volatility. Although investors are enjoying record highs, a bubble may be imminent, notes Alan Greenspan, former chairman of the Federal Reserve.

21st century diversification places investments into a much wider range of assets for shelter from stock market volatility. Rather than having 100 percent of retirement funds investment in company-offered avenues, investors can take a portion of their retirement accounts and invest it where they deem best.

It can be a much safer way to invest. Real estate is one of the most popular avenues people who open Self-Directed accounts pursue.

Commercial real estate — office buildings, medical office, strip centers and the like — are one avenue, but these investments may require a heavier financial lift than what’s available to individual investors. However, crowdfunded real estate investing allows solo investors to pursue opportunities formerly limited to high net-worth individuals and institutional investors.

For many solo investors, residential real estate such as small duplexes, mobile homes, rental homes, flip investments and similar properties offers more manageable and tangible investment opportunities. Investors who buy properties in and around their home communities also have the added benefit of being intimately familiar with market demographics and pricing trends so they can spot the best deals.

Considerations for residents investing include tenant turnover — it’s often higher in multi-unit buildings than with standalone single-family properties. Turnover means loss of revenue due to missed rent, as well as incurred maintenance costs. Landlords also must decide if they want to engage a property management firm to manage their assets. All these factors need to be calculated into return on investment to determine if the property is a good buy.

Certain rules apply to buying real estate through a Self-Directed Solo 401(k) and a Self-Directed IRA:

· You can’t use the investment for personal gain — purchases must be rentals and not primary residences.

· All work on the rental properties must be performed by unrelated third parties.

· These plans do not permit direct ownership or ownership by disqualified parties, such as relatives. Properties are titled in the name of the Rocket Dollar account, and renters make payments directly to the plan.

Investors retain full control of their financial options and can follow their investment dreams. Rocket Dollar unlocks the power of individual retirement account investing while helping investors retain the tax protections they currently enjoy.


Learn more in The Rocket Dollar Guide to Self-Directed Retirement Plans



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