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For more than the past century, real estate has had consistent growth.

This has made it a go-to investment for investors everywhere and an important part of any thriving economy.

However, while real estate investing is well-known, the benefits of using a retirement account for investing in real estate– especially a Solo 401k– are not.

Why should I use my Solo 401k to invest in real estate?

If you purchase real estate your own personal funds, you’re going to have to pay federal and state income tax on the gains.

However, if you purchase real estate with a retirement account like an IRA or 401k, the gains are not subject to taxation until they’re removed from the account, meaning you can immediately reinvest those gains into your Solo 401k without taking that initial tax hit.

That’s a great reason to invest in real estate with a retirement account, but what’s so special about a Solo 401k?

With a Solo 401k, you get access to several significant features that make investing in real estate easier, more profitable, more hassle-free:

No custodian: An IRA must go through a custodian for all real estate transactions– a Solo 401k doesn’t because you serve as trustee of your own account. This results in less hassle but also saves you money on custodian fees.
Exempt from UDFI: When financing a real estate purchase with an IRA, the gains on that property will be hit with the UDFI (Unrelated Debt Financed Income) tax. This is a hefty tax with rates as high as 40%. However, with a Solo 401k you’re not subject to UDFI tax.
Non-recourse business loans: With NRB loans, you’re able to protect your Solo 401k assets from being touched while investing in real estate.

This, combined with the previous points, makes the Solo 401k ideal for investing in real estate.

But how do you go about investing in real estate with a Solo 401k?

How to invest in real estate with a Solo 401k

You can invest in real estate with your Solo 401k by following these steps:

1. Open and fund your Solo 401k account

First, set up your Solo 401k account and make the initial deposit that you’ll use as a down payment later.

This can be done through several different methods, including:

A contribution
IRA or other qualified plan rollover (such as a 401k or 403b)

2. Decide purchase method

There are several options for purchasing real estate with a Solo 401k. These options include:

Cash purchase: All cash purchase with no loan.

Tenants-in-common purchase: Tenants-in-common (or TIC) is a cash purchase where a portion of the funds are personal so that both you personally and your Solo 401k own a percentage in the property.

Non-recourse business loan: As discussed earlier, this is a loan option that protects your Solo 401k assets in the case of a default.

3. Make an offer

Once you’ve set up and funded your account and you know how you’re going to make the purchase, the rest of the process is essentially the same as any real estate transaction.

Once your offer has been accepted, you’ll complete the closing process by signing and submitting all purchase-related documents to the escrow agent along with a check for the deposit or purchase amount.

Once you’ve done this, you’ve completed your first Solo 401k real estate investment!

Real estate investing made easy with a Solo 401k

Without a doubt, the Solo 401k is an ideal vehicle for investing in real estate simply and easily.

Whether you’re looking to invest in rentals or flip properties, use the power of a Solo 401k to your advantage to reduce the hassle of investing in real estate while maximize your return.

Beneficial Insurance Solutions is here to make it easier to understand what insurance terms are and what is covered.

Here is a guide to help you decode home insurance terms and working:

Agent and Broker
An agent represents a particular insurance company and sells their products. A broker deals with insurance products of more than one insurance provider. It doesn’t matter whom you conduct, it is important to choose an insurance policy that serves your purpose after careful research.

Deductible
The deductible is essentially the amount of money you pay upfront before the insurer pays your claim. The advantage of opting for a substantial deductible is that the premium payments would go down.

Tenant and homeowner insurance

Depending on whether you own the property or have rented it out, the nature of your policy would differ.

Homeowners’ insurance covers the entire home including its exterior, home infrastructure. It also covers theft, fire, earthquake etc. Homeowners’ insurance is more expensive compared to that of a tenant. However, you can limit the costs by choosing what you want to be covered.

Tenant or renters insurance covers only the contents if they are damaged due to fire or theft. It also covers additional living expenses if the accommodation becomes unavailable to live due to fire or flood.

Personal liability
Irrespective of whether you own the house or are a tenant, you are responsible for bodily injury or property damage unintentionally caused to others. The personal liability portion of your home insurance covers such liabilities. It doesn’t cover injuries sustained by you or other members of your family on your property.

Types of home insurance

Home insurance policies are broadly classified as basic, broad and comprehensive.

Basic coverage is minimal coverage like loss due to fire. If you take a basic policy, you can save on insurance costs and manage other potential losses yourself.

Broad coverage offers comprehensive coverage for your house but is limited to perils coverage for its contents.

Comprehensive coverage covers all the possible risks to your home and its content, except those that are specifically excluded. For obvious reasons, this type of policy attracts the highest premium payments.

Choosing perils of coverage
You can reduce your home insurance costs by specifying the perils of coverage that you want your home to be insured against. You can also add your perils coverage if required by paying the required feed. By choosing the perils of coverage, you can better plan your home insurance coverage and costs.

What is not covered?
Home insurance policies usually do not cover damages due to the freezing of indoor pipes, insect and rodent damage, damage due to landslides, earthquakes or freezing outside your homes.

Once you are aware of the insurance terms and understand their implications, you can be better equipped to make an informed decision regarding your home insurance policy. If all the information is too overwhelming, you could ask an insurance consultant to guide you.