Fully fund a Roth IRA, or save for rentals?

Question

I currently have some capital to my name and am trying to reallocate my funds to start a real estate portfolio. I'm a one income household and am looking build a solid foundation for my family before I take on more risky investments. I received some advice to first focus on fully funding two IRA's, then move to real estate investments afterwards. The problem is, I don't have enough monthly income to do all 3 right now. I might be able to get away with doing 1 or 2. It'll take me forever to grow that kinda capital.

My question to the group is, should I be trying to fund 2 Roth IRA's to take advantage of the compound interest in the future or push everything towards real estate? I'm 35 years old with a pretty decent job.

My question to the group is, should I be trying to fund 2 Roth IRA's to take advantage of the compound interest in the future or push everything towards real estate?  I'm 35 years old with a pretty decent job.

Mike Zipf · Answer

You can borrow against your IRA to buy a home. There is some risk and it's generally recommend that you pay it down quickly but if you plan on doing a cash out refinance it should be less of an issue. This is why my financial advisor told me to fully fund my IRA, even if I am getting ready to buy a house.

Matthew McNeil · Answer

I do both, but if your funds are limited as you wrote then I'll ditto what Account Closed wrote and look for another income or revenue stream then use that to better position yourself.  If you're creative and think outside the box then you can find additional revenue engines.

Curtis Curley · Answer

Account Closed  The part that makes this complex is real estate creates more income.  Shouldn't I be going after that more income instead of passively saving towards the future?

Account Closed · Answer

@Curtis Curley

It depends on your goals, when you need the money, how much work you want to do, etc.

I would much rather put $12k in the market as opposed to rentals, because it literally is no work on my part besides a few clicks.  But, I favor equities over REI.

Account Closed · Answer

I contribute the max to my 403(b) and roth IRA prior to investing in rentals.  Set it and forget it and let the market do it's thing.  Truly passive.

You should probably focus on getting another income in the family.  Unless, your family made a decision for one person to stay home.  Think of it this way.  You can let the $12k ($6k per person) grow while you educate yourself and withdraw the money later penalty-free.  Not saying you should withdraw from a retirement account, but it is a option.

Justin Windham · Answer

@Mike Zipf

Your financial advisor told you that you could borrow against your IRA? That would actually be a prohibited transaction that you would put your entire IRA at risk for distribution.

Alia Ganaposki · Answer

Roth IRAs are magic. You can withdraw from them after 5 years if you need to (though I would only do that in a true emergency). It's still a comfort.

When we bought our home, the bank used our retirement accounts as collateral/to reassure themselves we were good for the mortgage.

I'm another vote for retirement first, property investment second.

George Blower · Answer

Please note that loans from an IRA are not allowed - you would need to have access to an employer plan that would allow you to take a loan (e.g. day job 401k or Solo 401k if you are self-employed).

Fully fund a Roth IRA, or save for rentals?

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