Retirement plan, all in with real estate or diversified portfolio

Appraiser · Valparaiso, IN · Member since 2015 · 121 posts · 62 votes

Hey everyone. As most of you probably know they are allowing you to take from your IRA up to 100K and pay it back over 3 years with no 10% penalty. If you don't pay it back, you just pay taxes on it. Of course I am thinking hmm. Many options... We have currently 6 successful rental properties. Good cash flow, 50% LTV, etc.. I have been a full time appraiser for 20 years and investing for about 15 years. I am really thinking just go 100% with the rentals and the hell with the stock market. Also hoping to start seeing some deals again in the not so distant future. I don't plan to pay the money back so 22 to 24% taxes on that. Averaging 15% return just on the rents. Keep it diversified stocks and rentals or go all in with real estate. Any advise would be appreciated.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

@Troy Forney

I would not recommend going all in with just real estate. I forgot who said it, but the number one is the worst number. Premise behind it is if you put all your eggs in one basket it will eventually cost you.

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Brian EastmanPro Member
Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
6y
@Troy Forney
Another option would be to look into a self-directed IRA or Solo 401(k). This would leave 100% of the funds in the tax-sheltered IRA, but give the IRA the capability to invest in real estate instead of (or in addition to) stocks.
This would mean that the IRA, not you, is the owner of the property. The IRA would pay for acquisition and all operating expenses, and the IRA would receive all income. You cannot touch the money personally until at least age 59 1/2, just like any other IRA/401(k). But, you don't lose 24% of your tax-sheltered retirement capital to taxes on the front-end.
Tons of info here on BP on the topic.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
@Troy Forney
I would not recommend going all in with just real estate. I forgot who said it, but the number one is the worst number. Premise behind it is if you put all your eggs in one basket it will eventually cost you.
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Justin WindhamPro Member
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
6y
@Troy Forney
You could also consider a hybrid between your original thought and Brian's excellent suggestion. A self-directed IRA or Solo 401k could accept funds from your current retirement plan. You could borrow or take a distribution of a portion of the funds to make non-retirement investments and the remaining funds could be used to grow your tax-advantaged accounts with real estate (and other) investments.
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Raychelle Greene
New to Real Estate · Rochester NY · Member since 2019 · 6 posts · 2 votes
6y
@Troy Forney I am thinking of doing the same as a first time investor. I think I want to pull out now and wait till the market is at its lowest. Any thoughts?
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Brian EastmanPro Member
Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
6y
@Troy Forney

@Chris Seveney makes an excellent point. My prior post was focused only only half your question. I agree that diversification is key to any good financial plan, and you need to think in a broad sense across all of your portfolio (taxable and tax-exempt) when making allocation decisions.
That said, there are a lot of alternatives to the stock market that you can look at besides direct ownership in rental properties which you are already doing. You could consider some private lending, multi-family or commercial real estate, or other non-real estate assets such as precious metals (a hedge with a small allocation only, of course) or digital currencies.
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Troy Forney
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Appraiser · Valparaiso, IN · Member since 2015 · 121 posts · 62 votes
6y
Thank you all for the comments and suggestions. The self directed IRA has been on my mind for years. I have even went as far as calling an advisor and discussing it. He ended up giving me too much information and complicated everything. I know some basics, but have many questions and my accountants of 15 years frowned upon it also. He said he doesn't really understand it. I don't really want to leave my accountant as he does a great job with my appraisal business and real estate. I can't believe no hard core real estate investors saying get out of mutual funds. Maybe I have been listening to too much YouTube!
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Bill Krenz
Fairbanks, AK · Member since 2017 · 21 posts · 8 votes
6y
I bought a house with my self directed Health Savings Account a few months ago. What I like about self directed accounts is the flexibility you get and options you have with real estate. I don’t think you should have all your eggs in one basket. I think the best way to learn is just set up account and try it out. You have currently have rentals so it will be a good transition into account. With my HSA deal I put down and 13,000 and the seller is financing the rest of the 128,000. I plan on selling the house in a couple years and should make 40-50 grand tax free. I also bought a triplex from someone that owned it in there self directed Roth account and I’m making the Roth account monthly payments which they just want a steady return. So it’s a win win for both of us. So I know both sides of it. I personally think SDIRA are great and have many benefits. Just reach out to me if you have questions.
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