“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” ~ Theodore Roosevelt

Are you a real estate enthusiast with an investment cash reserve? In the current economy, average investment options are either exposed to market volatility or offer low returns to make it even worthwhile for a vast pool of investors. Real estate ranks higher among other investment vehicles, considering its tangible nature and reliable year-over-year growth (well, we always have a chance of a real estate bubble burst, but property regains value just like the last one).

However, with better returns comes higher responsibility as you will be responsible for managing the property. If you are a small business owner or self-employed professional involved in a full-time business activity, managing real estate could be a big challenge.

Honestly, do you have the time to visit your property every once in a while? Are you able to handle rental income accounts along with that of your business? Would you like to spend your weekends fixing dripping taps or mowing lawn in your rental property?

If not, how do you plan on managing the property? Let me say the magic words, “Property Managers.”

According to a market research report from IBISWorld, property management industry yields revenue worth $62 billion, while growing 3.3% annually between 2011 and 2016. It employs more than 766,094 individuals as of October 2015.

There are several levels of property management but “turnkey real estate” takes the overall experience a step further. For those new to real estate investing, turnkey real estate is a piece of real estate that is ready to generate rental income with no repairs or maintenance whatsoever. These rental properties are managed by individual property managers or firms that charge a monthly fee against their services. They will take care of repairs, collect your rent, handle any legal problems, and even handle evictions.

5 Reasons to Invest in Turnkey Real Estate

  • Professional Team: Considering the competition in turnkey real estate industry, these companies maintain a high level of professionalism and deliver the best value to their clients. They have in-house staff or reliable contractors that manage all the repairs. Above all, you don’t have to answer tenant calls at midnight, as the property manager does that on your behalf.
  • Local Market Knowledge: A majority of investors aim for rental income along with property appreciation over a long-term, and the turnkey company understands that. As a part of their job, they invest in growing their knowledge of the local market, and if you happen to work with a reliable company, you can leverage their knowledge to invest in growing areas.
  • Buy Property Anywhere in the Country: Since the turnkey company manages the property, requiring no involvement from your end, you can invest in far off locations. For an instance, if you live in the eastern coast of the country, you can look into a growing real estate opportunity in the western coast or vice-versa.
  • Immediate Cash Flow: Unlike traditional real estate, turnkey properties start generating income from day zero, making it a positive cash flow investment right away. You won’t have to do the repairs or market the property for tenancy, the turnkey company does that for you. Further, financing could be comparatively easier for properties that are already generating income.
  • Portfolio Diversification: Instead of investing in a single market, turnkey real estate allows you to diversify your real estate portfolio. A diversified real estate portfolio can sustain local market fluctuations, while maintaining an average cash flow throughout the year.

Invest in Turnkey Real Estate with Solo 401k Plan

If you are a small business owner or self-employed professional with a Solo 401k plan, you can supercharge your retirement portfolio with turnkey real estate investment.

Unlike traditional retirement plans, Solo 401k offers a Roth saving option, which means you can contribute after-tax dollars and pay no taxes at the time of withdrawal. Further, an annual contribution limit of up to $59,000 encourages people to max-out the plan and build a cash reserve quickly.

The IRS allows real estate investments through qualified self-directed retirement plans. When we talk about diversification, adding real estate in your portfolio could be a game changer. After all, you can generate rental income along with an appreciation in the property’s value.

  • Pay no taxes on rental income: If you purchase turnkey real estate with a Roth Solo 401k plan, you will not have to pay any taxes on rental income as well as capital gains realized upon the sale of the property.
  • Use non-recourse financing: You can fund your transaction with non-recourse financing and improve your overall credit-risk profile. Further, in case of a default, which might happen when you purchase overpriced properties, the lender will have to recoup the funds by selling the property only, as it would be the only collateral involved in the deal.

Some of the rules that you will have to follow:

  • Do not involve disqualified personnel in the transaction.
  • All expenses incurred in the transaction go from the Solo 401k account only.
  • All the income generated out of the property comes back to the Solo 401k plan only.

Considering the complex nature of self-directed IRA transactions, make sure to hire an experienced real estate attorney for the job. It is best to seek professional guidance when buying real estate through your IRA.

 

Dmitriy is the founder and president of Sense Financial Services LLC, boutique financial firm specializing in self-directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker. Over the years, he has instructed hundreds of investment and financial planning seminars and has mentored thousands of investors.