Real estate investing inside retirement accounts

[Ronason]

Happy Thanksgiving to everyone. Question regarding the subject line above. I have an itch to try my hand in diversifying into real estate. I have read Brandon Turner’s book and don’t have the heart or time to go into rental properties at this stage. I’m 40, busy surgeon, 2 kids.

I’m thinking of syndicated deals, fractional ownership of apartments or commercial real estate. I’d like to try something like $25,000 at first.

I’m doing all of the other right savings things. Backdoor Roth x , family HSA, fully funded 401K with PSP. Also set up a cash balance plan for my 1099 income. Saving at least 20% gross.

My amended 401K allows for holding real estate inside the 401K. I’ve read about self directed Roth IRA’s and it seems costly to do this for what may be a one time investment. I also read POF’s blog post
about my scenario but am still unclear. They charge about $300/yr to hold the accounts. I don’t want to pay $1500 for a checkbook IRA unless this is something I will do more than once.

So what do you guys do in this situation? Is it worth it to try to invest inside a retirement account (my 401K or my Roth) with a 25K investment? If so, how would you go about doing it?

Thanks in advance.

[FIREshrink]

Given your lack of experience in real estate, all of the above sound inferior to investing in a REIT.

[Ronason]

Already invest in a REIT within my HSA. Freely admit my lack of RE experience. But my question wasn’t if I should do this or not, it was for ideas on how to do it. Many of the people here have done something like this and I am considering trying. I have the income to do it and was looking for some advice on how it could be done.

[Re3iRtH]

I have invested in rental real estate inside a Roth IRA for many years. I would highly recommend it. Tax advantages are not as good as with regular RE investing but reinvesting cash flows back into the account is nice.

And FYI: investing in a REIT is not "investing in real estate". Not even slightly, not even close. Despite what many mutual fund investors will tell you, despite not have any experience with actual RE investing. Investing in REITs are investing in paper, just like mutual funds.

REITs = No control, cant choose the property, cant choose the submarket, can't underwrite the deal, cant run the numbers on the deal, cant select tenants, cant negotiate loan terms, tax advantages are minimal, cant choose property manager, cant 'manage the property manager', cant choose to refinance, cant choose a different investing strategy, cant 1031 exchange, cant choose when or how to exit, etc.

Real estate investing = can do all of the things above.

Don't let a stock investor tell you that buying a REIT is real estate investing.

[q-school]

Re3iRtH wrote:

I have invested in rental real estate inside a Roth IRA for many years. I would highly recommend it. Tax advantages are not as good as with regular RE investing but reinvesting cash flows back into the account is nice.

And FYI: investing in a REIT is not “investing in real estate”. Not even slightly, not even close. Despite what many mutual fund investors will tell you, despite not have any experience with actual RE investing. Investing in REITs are investing in paper, just like mutual funds.

REITs = No control, cant choose the property, cant choose the submarket, can’t underwrite the deal, cant run the numbers on the deal, cant select tenants, cant negotiate loan terms, tax advantages are minimal, cant choose property manager, cant ‘manage the property manager’, cant choose to refinance, cant choose a different investing strategy, cant 1031 exchange, cant choose when or how to exit, etc.

Real estate investing = can do all of the things above.

Don’t let a stock investor tell you that buying a REIT is real estate investing.

Click to expand...

maybe you are correct about whether REITs are/are not investing in real estate.  but many of those options you list would not be available to original poster in the syndicated deal and fractional ownership that were offered as examples.

 

[FIREshrink]

Re3iRtH wrote:

I have invested in rental real estate inside a Roth IRA for many years. I would highly recommend it. Tax advantages are not as good as with regular RE investing but reinvesting cash flows back into the account is nice.

And FYI: investing in a REIT is not “investing in real estate”. Not even slightly, not even close. Despite what many mutual fund investors will tell you, despite not have any experience with actual RE investing. Investing in REITs are investing in paper, just like mutual funds.

REITs = No control, cant choose the property, cant choose the submarket, can’t underwrite the deal, cant run the numbers on the deal, cant select tenants, cant negotiate loan terms, tax advantages are minimal, cant choose property manager, cant ‘manage the property manager’, cant choose to refinance, cant choose a different investing strategy, cant 1031 exchange, cant choose when or how to exit, etc.

Real estate investing = can do all of the things above.

Don’t let a stock investor tell you that buying a REIT is real estate investing.

Click to expand...

You have a strong pro real estate basis, which is fine. But you should tell him that.

And I do invest in real estate. Have a rental property all my very own. Manage a multifamily apartment building and a duplex for a trust. Own properties in 4 states.

You are arguing that real estate is inefficient and you can pick winners better than a professional real estate investor/REIT manager. I believe you. I doubt that is true for every ‘busy surgeon’ with no real estate experience at all. But he has decided to do it, so I say, “good luck.”

[NJDoc]

I'm very pro real estate, I never had the opportunity to do any such investing inside of my 401K so for me it was always in the taxable account.

I have been involved in syndicated deals for several years and am very happy ( usually) with the returns. As mentioned above the tax advantages of RE investing are mostly lost within your 401K/IRA. It's still good, cash flows can be excellent so , why not.

My only concern is can you find a good solid syndicator for such a small investment amount? As mentioned in several other posts, track records are key and I would be VERY cautious using a crowdfunded site. Just my opinion.

 

 

[jfoxcpacfp]

REITs may not have the same qualities of owning physician real estate, but you are investing in real estate, same as buying a share of AAPL is owning a share of the company. Saying you’re just buying a piece of paper is akin to saying the deed to your property is just a piece of paper or the partnership agreement is only an investment in paper. REIT investing is more efficient and, for many, that’s a more appropriate way to invest and diversify in real estate.

[The White Coat Investor]

I keep my equity investments outside retirement accounts, but I think it's perfectly reasonable to put debt investments in there. Otherwise, the Vanguard REIT index fund is my only real estate investment in retirement accounts.

[PhysicianOnFIRE]

I was going to suggest this post, but I see you already found it.

I'm planning to invest in a few of the crowdfunded deals in 2018 and will decrease my REIT holdings accordingly as a counterbalance. Like WCI, I will most likely do it in the taxable account. The tax treatment is less than ideal, but my marginal tax rate will be dropping with my current part-time and future no-time schedule.