Sources of Capital When You Need Cash for a Real Estate Investment

Real estate investing can be a haven during uncertain economic times. Values do not trend with the stock market and can serve as a hedge against inflation. The challenge is often not whether it is a good time to add real estate to your portfolio but where is the best place to access the cash required.

Below are potential ways to raise the capital needed for a real estate investment opportunity.

Solo 401ks and IRAs accumulate balances through direct contributions or rollovers from a company-sponsored plan. They are the most common retirement vehicle and offer tax-deferred or tax-free growth, depending on the account.

While the vast majority of IRAs focus on traditional holdings such as stocks, bonds, and mutual funds, you can choose alternatives like real estate. Self-directed Solo 401ks or IRAs provide a way to own real estate within the IRA. If you follow the IRS rules, you could participate in a syndication or purchase a property directly without losing the tax benefits.

Home Equity Loans or Lines of Credit: Due to rising home prices, nearly 45% of homeowners were considered equity rich by the end of the first quarter of 2022. This equity could provide the capital to add more real estate to your holdings. Loans and lines of credit secured by your home tend to feature low-interest rates and monthly payments. If the anticipated return is higher than the rate charged, it could be a way to leverage your home (or even an investment property).

Selling Current Real Estate Holdings: Owning a vacation or rental home teaches you the value of real estate. However, many investors find the time commitment is more than anticipated. In today’s market, you could sell your property at elevated prices and participate in a real estate syndication, giving you similar benefits without the work. When utilizing a 1031 exchange, you can defer taxes on the sale, allowing you to invest all the proceeds in the new deal.

Downsizing Your Personal Residence: If downsizing or relocating to a different market is on your radar, now could be the right time to sell. Housing prices remain elevated, and inventory is low in most major metro areas, allowing most sellers to get top dollar for their property. Trading your home for a smaller one or moving to a less expensive area could free up tax-free cash for other real estate investments.

Inheritance: Economists expect a wealth transfer of 15.8 trillion over the next decade. Yet most heirs spend their windfall within two years. Investing in real estate will keep the money working in a stable but illiquid investment.

Liquidating Crypto: Economic uncertainty and overleveraging shook up the crypto market in 2022. Bankruptcy filings included several industry leaders like FTX, BlockFI, Voyager Digital, and Celsius. The long-term impact is still unclear, causing many investors to rethink the risks involved in the crypto market. Transferring crypto assets to real estate could lower risk and improve stability.

Using Funds to Invest in Real Estate Syndications

If you are interested in real estate investments but don’t have time to find and buy individual properties, syndications may be the answer. A team of experts locates suitable commercial properties and then invites investors to participate in the deal through capital contributions in exchange for a share of the profits.

We produced a short introductory video to discuss the basics of real estate syndications and how you can partner with McKee Capital Group.

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