Self employed business owners and contractors have long been introduced to the concept of self-directed Solo 401k plan. This retirement plan offers many benefits, including high contribution limits, self-directed option and easy administration. Among those benefits is flexible investment choices, which most plan holders consider very attractive. With that, the idea of retirement planning is no longer tied to only stocks and mutual funds. Now plan holders can consider other investment possibilities for better return and better security.
Rental properties are now becoming an increasingly popular option for retirement plans.
Value appreciation
Buying a property, plan owners often count on resale value to help recover their initial investments, plus some profit due to value appreciation. In good market, demand for housing is constant and often, buying a property is a good way to safeguard the money against inflation. Even when the real estate market is not doing well, the house still retains some tangible value and therefore, lowers the risks for investors. This is especially important for a self-directed Solo 401k or an IRA, as security is a priority for retirement plans.
Rental income
While waiting until the day to cash out their investments, plan holders can also collect rent payment as a source of passive income. The rental income overall can add to overall rate of return on the investment and generate instant cash flow back to the self-directed Solo 401k account.
Rental income is a perfect fit to a retirement plan as it is often a long term investments that requires little monitoring. Once the lease is set, often for a year or longer, the rent payment is fixed and the plan owners will not have to look at it again until the next lease renewal. With this type of investments, the return is predictable and there is less management involved. The plan owners, therefore, are free to focus on their main career or business.
Ability to use non-recourse financing
Unlike an IRA, a self-directed Solo 401k can use non-recourse financing to purchase real estate properties without triggering an unrelated business income tax. This allows investors to leverage their property purchases and invest more efficiently. Single and multifamily projects are more accessible to investors.
Rental properties often help generate a much more predictable return than house flipping or stock trading. As a passive investment, it is a good fit for retirement portfolios. The return is fixed and requires less management or monitoring by the plan holders. Therefore, plan holders can let their retirement funds grow while still able to focus on other aspects of their lives such as family or main career.
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