Diversify your portfolio to minimize the riskAs we all know not to put all the eggs in one basket, having all your retirement future rested upon one investment type is not recommended. Especially with the ups and downs of the stock market, we can never tell when the next financial crisis is going to happen. Having part of your funds invested elsewhere will mitigate the risk.
Besides, unlike stock investment, with real estate you are much less likely to lose it all. In the worst scenario, you can always sell or foreclose the property to recover your capital.
Predictable earnings to your self employed 401kWhen security is the top concern, most investors often choose to invest in rental properties, which offer a steady, predictable stream of payments to their retirement account. Another option is investing in notes, where the plan will be paid a fixed interest rate every month, even if the property is not occupied. Due to the secure nature of these investments, most people see them as sources of passive income, where there is little to no effort required to manage the property.
Or gaining large returnsOn the other hands, some investors prefer a bigger return to quickly grow their retirement fund, which can certainly be achieved by investing in real estate. Usually, this group of investors will invest in properties that have potentials for long term appreciation, or engage in flipping houses.
Besides allowing real estate investment, self employed 401k also has many features that make it more feasible to invest in real estate. For example, investing in real estate often requires more capital upfront. Fortunately, the plan allows higher contribution limit than an IRA, which means you can put away more funds in a shorter amount of time to finance real estate purchases. Leveraging your investment is also allowed by non-recourse loans, whereas such transactions with an IRA account will trigger Unrelated Business Income Tax (UBIT). To avoid complication during the loan process, make sure to talk to your plan provider and work with a specialized non-recourse lender.