Converting 401k to Real Estate
Does anyone know if it is easy/possible to take your 401k and invest it in real estate such as an apartment building? Assuming it is enough to purchase the building
Thanks, here's a good article for anyone else interested:
http://articles.moneycentral.msn.com/Investing/RealEstate/GroundYourRet…
Does anyone have personal experience with this?
In a 401k? No. Your employer determines what you can invest in.
In a rollover IRA when you leave your employer? Yes, but you have to be very careful.
-The second you repair anything out of your own pocket rather than the 401k's, it's a distribution. (Subject to 10% penalties if you're under 59.5 and income tax) -The second your cousin rents from it, it's a distribution. -The second it gets involved in anything but an arm's length transaction, it's a distribution. -The second you do any work on it yourself, it's a distribution. -The second you so much as set foot on the property, it's considered a distribution.
Bottom line, make sure it's AT LEAST a couple counties over (ideally a few states over) and that you NEVER visit it, that your friends and family NEVER rent from it, and that ideally, you have somebody else managing and administering everything for you.
It may just be smarter and easier to invest in a private real estate fund or in a REIT. But yes, people have done it and made it work.
Suppose a family member owns and operates a number of apartment buildings within a city. Could I simply use the money to purchase a building and, completely hands off, allow her company to run the building while I pay a fee or whatever to keep it compliant
This is where it starts to get fuzzy and you need to find yourself a good tax lawyer. It definitely needs to be an arm's length transaction with the tenants, but I'm not so sure about the trustee. If you need help finding one, my Dad handles situations like this fairly often and I can get you in touch.
Tax lawyers typically bill on the order of mid hundreds of dollars per hour, but a good one will get you an answer pretty quick as to whether this is a smart move and how much it's going to cost.
Remember that you have to pull the money out of your 401k and stick it into an IRA first, and you can generally only do that once you've left the firm.
Thanks again, PM sent
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