While there are many benefits of a 401(k) plan purchasing real estate, keep in mind that:
1) Time Constraints — As Trustee of your plan, you control the investment checkbook. All you need to do is write the check for the investment in the name of the 401(k) plan as the legal Trustee. No more waiting for waiting for another company to process or not even being able to make the investment at all.
2) Time as Your Friend — Let’s face it, a 401(k) plan, in most cases, will not make distributions to the individual until their retirement years. Real estate investing can factor in appreciation over a period of time. This expected appreciation can be short or long term. The 401(k) plan, by its very nature of when distributions will occur will permit, if necessary or desired, to play the “waiting game” on the investment. With other non-qualified sources of funds (e.g., non-retirement funds), you may need access to the funds in a shorter period of time.
3) UDFI — If structured correctly, the 401(k) plan will not be subject to Unrelated Debt Financed Income taxation for real estate investments (only).
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