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401k and Real Estate Investing
Often, these deals are structured on a short term basis, for fixer up situations, where the idea is to increase the value of the property and resell it. Once the value from the property is released, the loan taken against the 401k can be paid back without affecting the 401k. However, the risk comes from the real estate deal going bad, in which case the project can affect the 401k plan, if you have no other means of financing the financial shortfall. There is, however, a maximum cap on the amount you can borrow against the 401k, depending to a degree on the amount of money you have in your 401k. Also, there are typically no additional tax benefits with using 401k to finance a portion a real estate related transaction. In addition to borrowing against the 401k, some retirement plans offer the option to invest in real estate investment trusts. The business profile of these trusts typically consists of buying and selling real estate. To unlock the potential of a 401k against real estate investing, it is a good idea to work with a financial planner, who can weight the pros and cons of using the retirement plan for real estate investing purposes. Each situation is individual, and you should go into detailed planning before embarking into real estate planning, whether it is financed against retirement monies or not.
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