401(k)s have been historically popular options for investors seeking to save for the future. These employer-sponsored retirement plans offer many advantages that have solidified their position as an investment vehicle.
However, a potential downside of 401(k)s is their restrictive nature regarding specific investment options. In recent years, some investors have sought alternative investment strategies, such as real estate, to maximize their savings and diversify their investments. They have turned to a specific type of 401(k), a self-directed 401(k).
In this article, we’ll explain the benefits of using a self-directed 401(k) for real estate investing and how to take advantage of this unique approach.
Self-Directed 401k for Real Estate: Why Consider It?
Although 401(k)s offer numerous advantages, they are accompanied by notable drawbacks related to investor control and limitations on eligible asset classes. Investors can typically expect funds placed into a 401(k) to be invested in stocks, bonds, mutual funds, and not much else. Investors have minimal control over their investment choices within traditional 401(k) accounts, as the decision-making authority rests entirely with the bank or brokerage managing the account.
On the flip side, self-directed 401(k)s offer many of the same advantages as traditional plans, coupled with additional benefits. Account holders have greater control over investment decisions, steering the account and choosing their preferred assets to invest in.
Using a self-directed 401(k) for real estate offers benefits but requires a specific account. Suitability depends on an investor’s goals, risk tolerance, and knowledge. Investments carry risks, and outcomes aren’t guaranteed. Consult a financial advisor for alignment with your objectives.
Self-Directed 401k vs Traditional 401k: What are the Differences?
Self-directed 401(k)s differ from traditional 401(k)s. Traditional 401(k)s are employer-offered retirement accounts where pre-tax employee contributions are invested in stocks, bonds, and mutual funds.
Self-directed 401(k)s are similar to traditional ones but offer more control, flexibility, and higher contribution limits. They allow investments in various assets, like real estate, providing potential benefits. However, this control requires more active investment management, different from the “set it and forget it” approach of traditional 401(k)s.
Additionally, while investors can certainly reap these benefits, it’s essential to acknowledge that they often entail a trade-off: more active involvement in managing investments, in contrast to the conventional perception of 401(k)s as “set it and forget it” accounts.
Fortunately, there are methods for investors who are attracted to the idea of utilizing their 401(k) for real estate investments but are concerned about assuming greater responsibility. These individuals can still employ a self-directed 401(k) to invest in real estate while maintaining a more hands-off approach.
Canyon View Capital Offers Real Estate Options for Self-Directed 401ks
Here at Canyon View Capital, we’re passionate about multifamily real estate and its many benefits. Our dedication led us to manage a portfolio of multifamily properties in America’s Heartland, now valued at over $1 billion2.
Although leveraging a self-directed 401(k) for real estate investment presents numerous advantages, we recognize that certain investors may be hesitant due to the heightened level of responsibility required for success. This is precisely why we provide real estate investment solutions tailored to those who prefer a more hands-off approach while still allowing them to partake in alternative investments such as real estate.
Supported by our steadfast “buy-and-hold” approach and a diverse portfolio of multifamily properties, we seek consistent returns in resilient, low-volatility markets. Our investment strategy provides investors with passive returns and enhanced liquidity compared to relying solely on 401(k) or real estate investments.
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1Patrick Grimes, “Why Income-Generating Real Estate Is The Best Hedge Against Inflation,” for Forbes, April 14, 2022, Forbes.com. Accessed Oct. 1, 2023.
2,3$1B figure based on aggregate value of all CVC-managed real estate investments valued as of March 31, 2023.
Eric Fisher, Chief of Staff
Eric joined Canyon View Capital in August 2021 with 15 years of hotel management experience grounded evenly between Property & Corporate Operations, and Business Development & Acquisitions. After $500M+ in hotel acquisitions, Eric uses his nuanced understanding of the acquisitions and transitions processes to support CVC real estate investments. His professional versatility makes Eric an invaluable resource for the President and Executive Team in all business functions, including Investments, Operations, and Strategy.