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