Any investment includes some risk, but with careful planning you will be on your way to utilizing the money that is sitting in a retirement account and profiting from a wise real estate investment.
Step 1: Assess the value and rules of your 401k Romeo Abdo. The amount of your loan will be based on the value in your retirement account, and while the 401k provides guaranteed funds, you will still be unable to borrow more than you can be expected to pay back. Additionally, your 401k might have rules that make borrowing against it difficult or subject to certain conditions. Be sure to check on this before beginning the process of acquiring a loan against the account.
Step 2: Research the different options available for investing in real estate using a 401k. One of the safest options is the real estate investment trust (REIT), which is composed of other companies that purchase and dispose of property. By investing in the REIT, the investor is allowing others to make the actual real estate investment, and while limits the investor to the decisions of others it also takes some of the load off the investor’s back.
Step 3: Research the option of the individual retirement account (IRA) for your investment. The IRA is not always a feasible option for some holders of a 401k, but it is something to consider when planning for a real estate investment with a 401k. Bear in mind that relocating money from the 401k to the IRA could impose a financial penalty, and this might or might not be worth the cost for your investment.
Step 4: If you are planning to use a loan for your investment, research and select a lender. With a conventional loan, you are essentially borrowing against yourself and ultimately pay yourself back with the loan. But this is considered a valid option for the 401k, so be sure to look into it closely. Each lender will have different rules for this type of investment, so ask around, and be sure to check on the specific requirements of the lender. Fees, interest rates, and so forth will vary, and these can have a significant impact on the value of the investment.
Step 5: Select the type of investment that you will use. Be sure that you have consulted a financial advisor, and particularly one that is familiar with real estate investments before you make your ultimate decision.