You’re trying to scale a daunting mountain peak. Your boots and harness aren’t working, but you still need to reach the top. You look around and see a few rope bridges that will allow you to accomplish your goal.
They’ve been there all along, only you couldn’t see them.
You were so fixated on your boots and harness.
At this point, a major life lesson crystallizes: there are always different routes to achieving an important goal – you just have to know what they are.
This lesson also applies to real estate investing, where a common misconception is that the only way to reach your financial peak is through having cash or obtaining financing. In order to help you avoid falling into this way of thinking, we’d like to make you aware of all the tools at your disposal.
When it comes to purchasing real estate, here are three great alternative funding methods: SDIRA, 1031 exchange, and solo 401(k).
Alternative Ways to Fund Your Real Estate Investment
An effective, little-known secret when it comes to buying real estate is to fund it utilizing a self-directed IRA (or SDIRA). A SDIRA allows you to pay for real estate investments with money from your existing IRA.
“It’s common knowledge that IRA’s are the go-to investment strategy, when it comes to saving for retirement and building tax-deferred investment portfolios. A SDIRA is a variation on an IRA which provides investors with an alternative means for saving for retirement,” says Scott Hetherington, director of marketing at HomeUnion®.
In order to utilize this funding alternative, you need to already have:
- An existing IRA
- Enough money in your IRA to be able to completely cover the costs associated with your new real estate acquisition
So why invest in real estate with a SDIRA?
This option offers great tax advantages, while also allowing you to effectively diversify your portfolio. Additionally, the Solution Managers at HomeUnion® can help you quickly and conveniently set-up an SDIRA account to buy real estate.
If you currently own real estate and are looking to fund your next investment while also deferring taxes, a 1031 exchange is a great option. With this approach, you take the equity of one investment property and exchange it into a new set of investment properties.
One of the most important aspects to properly executing a 1031 exchange is timing. Here’s how it breaks down: after you’ve sold a property, you have 45 days to identify replacements. Then, you have 180 days to complete the acquisition of your replacement real estate asset. As timing is essential in this strategy, you’ll want to work with one of our Solution Managers to help guide you through the process and make sure you meet the tight deadlines.
Lastly, solo 401(k) plans are designed for small business owners who don’t have any full-time employees other than themselves and their spouse. They offer great flexibility when it comes to investment options and owners of this plan can choose to act as their own trustees, while also investing their funds in assets of their choosing.
Here are the rules you have to follow when using a solo 401(k) for real estate investing:
- You aren’t allowed to receive any personal benefits from your investments; for example, any properties purchased with a solo 401K can’t be used as personal residences.
- You can’t personally perform any maintenance work on the property (not even something as minor as changing a light bulb). Instead, all work must be done by an unrelated third party.
- You are required to deposit all rental income back into the solo 401(k) plan and use it to pay your rental expenses.
Open a SDIRA, 401K, or 1031 Exchange with HomeUnion® Today
If you meet the requirements and are able to fund your real estate investment using any of the strategies described above, give HomeUnion® a call today at 888-276-0232 or schedule a consulation. We can map out your custom investment strategy, and work with qualified partners to ensure the alternative funding process runs smoothly.