Should you use your retirement funds to invest in rental property?The stock market may go through a long period of wild swings and at the same time real estate prices have dropped dramatically in many areas.
Two tsunami's have swamped the financial world in the past 12 months and these events provide a great opportunity.
The stock market is down by 50% since its peak in 2007 and you are wondering how you are going to retire or what to do with your investments.
At the same time housing prices have collapsed in many areas while interest rates are at all time lows.
If you are like most people you are afraid for the future and uncertain about what to do.
But to those who have some vision, now may be a time to take advantage of a golden opportunity.
It is a great time to take advantage of low real estate prices.
In many areas mortgage payments (PITI) are lower than rents.
Real estate prices are cyclical in nature and will increase again despite what the pessimists say.
So why not take advantage of low prices and invest in rental property? You may be thinking that you don't have the money but if you have a retirement account there could be a solution to your dilemma about what to do with your retirement accounts.
Why not borrow against your 401k or use a self-directed IRA to fund a real estate purchase? In general it is not a good idea to borrow against your 401k (to buy a car or fund a vacation for example) but I believe it is an ideal vehicle to use for real estate investments.
I have used mine to buy 2 houses.
You can borrow up to $50,000 against your 401k and typically have multiple loans (my plan allows 3 loans).
If the loan is for your personal residence it can be a 10 year term, otherwise it can only be a 5 year term.
The best part is that you are paying yourself (rather than a subsidized bank) a nice interest rate.
That is better than taking a 50% loss on stocks or even the small or no interest rate that a bond fund may pay.
Yes, you will pay taxes on the interest you pay yourself (not the principal payments).
But, your marginal tax rate on the interest you pay yourself does not exceed the higher interest rate your 401k is earning, so it is a net plus to use these funds.
In a like manner, you can convert your IRA into a self-directed IRA and invest in rental property directly.
All of the rental profits go directly back to your IRA and when you sell the property the profit would go to your IRA.
If it is a Roth IRA all of that profit is not taxed! Maybe your don't have an IRA.
I'll bet someone you know does and would be interested in earning a steady income from loaning you money from their IRA.
Just develop a business plan and sell the idea to them.
These are just a couple of ideas for using your retirement funds to invest in rental property.