By age 40, you should have three times your annual salary saved for retirement, according to many financial advisors.Not there yet? That’s okay. Your career as a loan originator provides you with real estate industry knowledge and advantageous connections.
“Whether you use your IRA to invest in properties to fix and flip, generate passive income through rentals, or use other people’s money to kick start your endeavors, real estate can form the foundation of a solid retirement plan,” says Steven Davis, CIO and CFO of 5 Arch, a lender to residential investors, mortgage brokers and private lenders nationwide.
Whether you’re close to 40 or have years to go, you can set yourself on the path to a comfortable retirement with these three ideas.
1. Use your IRA to fund a property purchase.
As a loan originator, you probably have access to real estate agents, investors, and even real estate bird dogs who can help you build a lucrative side gig investing in properties. But you may not have the capital you need to invest. That’s where your IRA fund comes in.
You can give yourself greater control over your retirement savings by using your IRA to fund your first investment property. Pick your own investment opportunities within a market you understand, with guidance from your network of real estate experts, rather than a financial advisor or an assortment of mutual funds.
“Using their IRA to fund investment properties puts the power to grow that IRA into the investor’s hands, rather than leaving their retirement income to the whims of Wall Street,” says Davis.
After you’ve purchased a property and are ready to flip it, you can roll the funds into your next investment without paying capital gains tax, because IRA income is always tax-deferred.
2. Use other people’s money to launch your real estate investing side gig.
Be aware: Using your IRA to buy investment property can create a lengthy list of limitations. You can’t claim depreciation on the property, and if the property operates at a loss, you can’t claim the deduction.
Additionally, you must hire contractors to perform repairs, and hire a property manager to handle all administrative tasks associated with the property.
Due to complex tax laws, you cannot rent the property to relatives, use it yourself, or hire any family members as contractors or property managers. Additionally, if the property needs repairs or maintenance, the money must come from within the IRA, and any income must go back into the retirement account.
“Given these limitations, many people decide they would rather find funding through a lender such as 5 Arch and maintain the freedom to manage, maintain, rent, and repair the property in whatever ways they see fit,” says Davis.
3. Use rental properties to generate passive income.
If you decide you enjoy being on the other side of the desk when it comes to real estate investments, rental properties can help you generate passive income before and during retirement.
“Providing you have a property management agency to handle your rentals, MDUs and single-family homes, rental properties can create a steady stream of passive retirement income,” says Davis.
Best of all, rental property income can scale up or down as your financial needs change; invest in another property for additional income or sell the property for a lump sum of cash.
“Combined with traditional investment savings, rental properties can help contribute to the financial security we all want in retirement,” concludes Davis.
