Most people associate retirement plans with stocks and bonds. However, with a self-directed retirement plan like a Solo 401k, there are many more options for plan holders to explore. Solo 401k plan owners can use the funds to invest in private lending, precious metals and many other options are available.
One of the popular options among self directed Solo 401k plan owners is real estate. Why is it a good choice to invest in real estate for retirement? Here are a few reasons why real estate can be a good addition to your retirement portfolio:
Low-risk, Long-term Investment
Comparing to stock investments, many would argue that a real estate property is less risky. In the worst case scenario, investors can foreclose or sell the property to recover some of the capital. On the contrary, with stocks and bonds, investors can lose all their money in a market downturn.
Over time, the property value can also increase due to appreciation or at least keep up with inflation. Many investors, therefore, venture in real estate with a long term outlook. The buy-and-hold strategy makes real estate a great fit for a Solo 401k plan.
Steady Source of Income
With stock investments, dividend earnings can be unpredictable. With a rental property, however, the rent rate is locked in after a lease is signed. Therefore, if you own a property in your Solo 401k, you can rest assured that the income is secure and predictable for the length of the lease.
Other Solo 401k plan owners also like to invest in trust deeds or mortgage notes. Similarly, these types of investments also offer great passive returns, even if the property is vacant. The passive nature of real estate investments is popular among Solo 401k plan owners. The reason is that it allows them to focus on their main business while avoiding prohibited transaction.
Real Estae Investments Made Possible with a Solo 401k Plan
Not only it is possible to invest in real estate with a self directed Solo 401k plan, investors also enjoy certain flexibility. The options include almost any type of real estate assets, including residential and commercial buildings, raw land, trust deeds, tax liens, and more.
The Solo 401k plan also allows the use of non-recourse financing, which isn’t typically allowed with other retirement plans. With this option, investors can use leverage to fund their purchases without paying any extra tax or penalty.
The Checkbook control feature is another big advantage. Investors can fund a purchase as easily as writing a check. There is no custodian to get approval from and no lengthy process to go through.