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Using Retirement Funds to Invest in Real Estate

One of the most common reasons people give for not investing in real estate is lack of funds in the form of liquid cash. The barrier to entry in real estate investing can certainly be high particularly in multifamily where the SEC essentially dictates the minimum investment amount by limiting the number of non-accredited investors. What many people do not realize is that there are other ways to invest in real estate besides liquid cash in a bank account. The most popular of these ways is using retirement funds.

Most employers have some type of retirement account provided for their employees to use for investing. 401ks, IRAs, 403bs and many more are offered as investment vehicles to provide shelter from taxes for funds set aside specifically for the purpose of retirement investing. Although these types of retirements accounts are commonly used to invest in the stock market, as an employee you have a choice to invest in other asset classes including real estate. The Self-Directed IRA or SDIRA is the most common of these accounts which is simply an IRA where the custodian (company that controls the account) allows you to select the investments where you would like to place your money instead of limiting you to a few options.

The process and cost for setting up a SDRIA varies depending on the custodian you choose but typically is a few hundred dollars to set up along with some type of ongoing maintenance or transaction fees. Therefore, you would want to have enough invested into this account so that these fees are negligible when compared to the returns you are receiving. This typically is not an issue when passively investing in multifamily where the minimum investment tends to be $50k or higher.

One important thing to note is that most custodians of employee 401ks and 403bs will not allow you to remove money and place it in an IRA until you have terminated your employment. This means that you will typically need to use money coming either from another IRA or from a retirement account from a previous employer. We always encourage folks who are changing jobs not to roll over their funds from one employers retirement account to the next because you are essentially tying these funds up once again until you leave the new employer.

While some of this might seem confusing or complex it is rather simple to go through the process if you have an experienced individual to guide you. We have helped several investors walk through this process and would be happy to discuss what this could look like for your investment plans.

There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please check out our free ebook "Achieving Financial Freedom Through Multifamily Investing."

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