I currently have $10k in a 401k account from my previous employer. Originally, I was going to put that into a self-directed IRA and then combine it with cash to put down on as 20% on a single family home. Apparently, that is not allowed.
Now, I was presented the opportunity to purchase land in Florida as stated below:
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With $10,000 we can do the following -
1- buy one lot in Lehigh Acres (10-15 minutes away from Cape Coral) for $7,000 . yearly expenses about $200 .3 years ago they were sold for about $40,000-$50,000 each.
2- Buy 2 lots in Fairfield Bay, AR for $8,000 . Taxes and HOA are about $500 per year per lot.The lots were selling for $7,000 each 2 years ago.
Either option could be pretty good when the economy rebound.
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Being that this would be my very first real estate investment, what would you do if you were in my situation? At the moment, the money in my 401k is just sitting around doing nothing.
I’ll tell you what I wouldn’t and that is invest in either of the things you described. I don’t know where you live but I’m sure there are better investments there. There’s a reason those lots are going for less money now and its not just the economy.
If I had your money I would look for lease options. You could control 3 or4 of them with that kind of money and then do sandwich leases or sell the options.
Good luck,
donrock
I’m wondering how you can use your 401K to buy vacant land, but not a SFR? How are the rules different for land?
As a beginning investor, I would think an owner-occupied duplex would be a much better choice. Then you have a roof over your head and some rental income at the same time.
Postpone buying land. That is not a liquid investment. You can not get rid of it in a hurry if you need to. Neither is a SFR or duplex, but land is an even harder sell.
Leave your 401K alone for now. Do some more research and make a plan.
At the height of the tech bubble, JeffreyMac, Cisco Systems was selling for nearly $80/share split adjusted. Now it’s at $15. Because years ago this stock sold for five times its current price, does this make it a good investment today? If not, why are you quoting real estate bubble prices for properties you are considering buying now?
Two or three years ago Southwest Florida, in particular the Cape Coral/Fort Myers area, was one of the epicenters of the speculative real estate boom. It has never recovered and likely will not for years to come. You are apparently knowledgeable about the dramatic decline in this area but have you researched the potential growth? If so, where do you see the value of these properties over your investment time horizon? What will drive this growth? Jobs? Industry? Location? A shrinking supply of land?
Due diligence is not done by looking in the rear view mirror. When you can post enough forward looking facts about these opportunities for us to form an opinion, you will have already made yours.
Wow. Thank you so much for the insight! I will search deeper for more information. I was just relying on purchasing and holding for the long term, assuming that RE values will grow over time. Now I see I must have more discrete forward thinking.
He has to rollover his 401k into a SDIRA. An IRA can invest in land or in a SFR. It is a prohibited transaction to use the IRA to invest in property you plan to use personally. So, an owner occupied residence is prohibited, but an investment rental property is OK.
Jeff,
You also have problems with the IRS if your IRA can not fund the purchase entirely with its own money. If you mix IRA money with a loan in your own name, you run into income tax compliations that may make much of your income from the investment taxable even though it is in the IRA.