Real Estate Investing vs 401K (et al)

[Nadine Hylton]

I realize a lot of investors start off by using monies from their retirement portfolios, whether its a 401k, IRA etc. Seems like everyone agrees that they enjoy a better rate of return in real estate than these conventional methods. Would you recommend pulling out ALL of your monies and investing in the various forms of real estate since they earn a higher ROI ? If you dont deplete your retirement accounts, what percentage of your portfolio is real estate investments (in all forms), retirement accounts and/or other vehicles?

[Mindy Jensen]

Hi @Nadine Hylton .

My husband and I have invested in 401(k)s during our employment. I became a stay at home mom and he became self employed. We took all our existing 401(k)s and rolled them into a self-directed solo 401(k). Note you MUST be self employed in order to use this strategy. If you are not, a self directed IRA can be used in a similar fashion. If you have a choice, though, the SD solo 401(k) is way better.

I can use my funds for real estate, stocks, or almost anything else. I'm in charge of directing where they go. I make Private Loans to people I know (NOT soliciting any more borrowers - all funds are deployed) I buy stocks or index funds for diversification, and I am the boss, which fits perfectly with my control-freak nature.

There are rules, of course. I can't personally benefit from the real estate - meaning I can't buy it with the 401(k) and then live in it rent free. I cannot perform any maintenance on the properties. I can't sell them to myself when I'm done with them being in the 401(k).

But for investment control, using the 401(k) for real estate is the reason I opened it up. (Thanks Brandon Turner for the suggestion.)