Leverage Growth with “No Tenant” Approach for 401k Small Business Plan

The real estate industry has attracted many investors and for all the right reasons. There are a dozen options available, starting with single-family homes, small apartments, commercial properties, and even mobile units. However, managing properties for securing stable income is not the easiest of the tasks, especially if you are a small business owner or a self-employed individual. Managing tenants, performing repairs, adhering to the legal regulations, and ensuring profitability is a lot to take in. That’s where the “No Tenant” approach comes in, allowing you to inherit all the benefits of real estate minus all the hassles. It starts with investing money in alternative real estate investments including cash flow notes or mortgage notes, tax liens, and real estate investment trusts (REITs). Much like physical real estate, you can add these investment vehicles in your 401k small business plan.

Investing in Mortgage Notes, Tax Liens, and REITs

• Mortgage Notes: Mortgage notes are promissory notes, either secured or unsecured, that hold the legal promise of repayment, including details like the loan terms, interest rate, and the principle amount. The real estate property associated with these notes serve as collateral, allowing the note holder to foreclose the property in case of a default. The IRS allows investing in mortgage notes with Solo 401k account, hence, helping you to ensure stable returns for your retirement plan. Make sure to redirect monthly repayments to your retirement account for tax-deferred growth.
• Tax Liens: In simple terms, it is a lien inflicted by the government against delinquent taxpayers and it could be placed unpaid property taxes or state income taxes. Unlike mortgage notes, tax liens do not offer a regular income stream and are paid off when the taxpayer makes lump sum payment. For those looking to control their risk profile in Solo 401k retirement portfolio, adding tax liens could serve the purpose.
• REITs: REITs are the perfect investment tool for passive investors, in a manner that they require no action on your part. All you need to do is to fund REIT purchases through your Solo 401k account and enjoy regular dividends in return. You can purchase REITs over the stock exchange much like other stocks with one key difference i.e. REITs distribute 90% of their income, offerings its investors smart returns.

A traditional Solo 401k account may restrict you to traditional investments only, so make sure to read the investing terms offered by your Solo 401k provider. It might help to choose a provider who offers checkbook control feature, letting you make your investment decisions without custodian consent. The biggest advantage of investing through Solo 401 account is its tax-deferred growth, as the taxes do not kick in until the distribution.