You May Already Have What You Need to Invest in Real Estate

2 days ago
5 min read

Most people think investing in apartment buildings (multifamily) requires using cash from their savings account.

And it certainly can. Many investors use cash savings to invest in multifamily real estate.

But it's not the only option.

Many busy professionals have spent years building wealth through 401(k)s, IRAs, brokerage accounts, and other long-term investments. What many don't realize is that some of those existing assets may also provide opportunities to diversify beyond traditional stocks and mutual funds by investing in apartment buildings (multifamily).

In other words, the challenge may not be finding more money. It may simply be looking at the assets you already have differently.

There isn't just one way to invest in real estate. Some investors use cash savings, others use a former employer 401(k), an IRA, or assets held in a brokerage account. The right approach depends on your financial goals, tax situation, and the types of accounts you've accumulated over the years.

Let's look at some of the most common ways investors get started.

A Former Employer 401(k)*

If you've changed jobs throughout your career, there's a good chance you've accumulated one or more 401(k)s from former employers along the way.

You may have consolidated some of those accounts over the years, or you may still have a 401(k) with a former employer that you haven't thought about in years.

For many investors, an old 401(k) can provide an opportunity to diversify into multifamily real estate through a Self-Directed IRA (SDIRA).

Many people are surprised to learn that a 401(k) doesn't necessarily have to remain invested exclusively in traditional stocks, bonds, and mutual funds.

Simply knowing this option exists often changes the way people think about investing.

If you're self-employed or own a business, there may be additional options available as well.

Let's dive deeper into these options.

Solo 401(k)s*

If you're self-employed or own a business with no full-time employees other than a spouse, a Solo 401(k) can provide another avenue for investing beyond traditional public markets.

Certain Solo 401(k) plans allow investments in alternative assets, including multifamily syndications, while maintaining many of the same tax advantages associated with these types of plans.

If you own your own business, it's worth understanding whether a Solo 401(k) fits into your long-term investment strategy.

Self-Directed IRAs (SDIRAs)*

A Self-Directed IRA, often called a SDIRA, is what makes many of these investments possible and is a very popular way to have more control over your investments.

Unlike most brokerage IRAs, which generally limit investments to publicly traded securities, a SDIRA allows investors to hold a much broader range of assets, including multifamily syndications.

The process is generally straightforward:

Eligible funds from a 401(k) or IRA are transferred into a SDIRA.
The SDIRA invests in a multifamily syndication.
Cash distributions are paid back into the SDIRA according to the terms of the investment.
The investment remains owned by your SDIRA.
When you retire, withdrawals from the SDIRA generally follow the same rules as any other IRA.

One of the biggest advantages is that you're expanding what your IRA can invest in—not fundamentally changing how the IRA itself works. That allows many investors to diversify into multifamily real estate while continuing to benefit from many of the tax advantages associated with IRAs.

Both Traditional and Roth IRAs can be established as SDIRAs, allowing eligible investors to invest in a broader range of assets while preserving the tax characteristics of the underlying account.

Brokerage Accounts

Not every investment has to come from a 401(k) or IRA.

Many professionals have accumulated significant wealth in brokerage accounts invested in stocks, ETFs, and mutual funds.

Over time, many investors choose to rebalance their portfolios by selling a portion of those investments and reallocating the proceeds into other asset classes, including multifamily real estate.

While selling investments in a brokerage account may have tax implications, it can also be another way to diversify your portfolio without waiting years to accumulate additional savings.

Cash Savings

Cash savings are another popular way people invest in multifamily real estate.

Whether it's money you've intentionally set aside for investing or savings accumulated over many years, using cash is often the simplest approach. There are generally fewer administrative requirements than investing through an IRA, and you'll have greater flexibility in how you manage your investment.

The point isn't that cash is better or worse than using another asset. It's simply one of several ways investors choose to invest in multifamily.

It's Not About Finding More Money. It's About Looking at Your Existing Assets Differently.

One of the biggest misconceptions we hear is that someone needs a large amount of cash sitting in a checking or savings account before they can invest in multifamily real estate.

In reality, many investors have already spent years building wealth. It's simply held in places they may not have considered using for real estate investing.

Understanding your options doesn't mean every option is right for you.

But it does mean you may have more choices than you realized.

The biggest obstacle to investing in multifamily isn't always a lack of money.

Sometimes it's simply not realizing the money you've already worked so hard to save may provide more opportunities than you thought.

If you've assumed you needed years to save enough cash before investing in multifamily, it may be worth taking a closer look at the assets you've already built.

Curious Whether Multifamily Could Fit Into Your Financial Plan?

Every investor's financial situation is different, and there's no one-size-fits-all approach to investing. We recommend discussing these opportunities with your Financial Advisor, CPA, or tax professional to understand what your options are.

If you're interested in multifamily investing but aren't sure how you might invest, we'd be happy to have a conversation. Whether you're considering cash savings, an old 401(k), an IRA, a brokerage account, or simply exploring your options, understanding what's possible is often the first step. We are also happy to provide some options for SDIRA custodians for you to explore.

Ready to Learn More?

If you’ve been thinking about investing in real estate but aren’t sure where to start, or want to explore how multifamily investing can fit into your long-term financial goals:

Let’s help you turn today’s market opportunity into tomorrow’s financial freedom.

*Important Disclosure

401(k), IRA, and Solo 401(k) rollover and investment options depend on your specific plan and individual circumstances. Self-Directed IRAs and Solo 401(k)s are subject to IRS rules, including prohibited transaction rules and other requirements. Investment eligibility and tax consequences vary by investor. Before making decisions involving a 401(k), IRA, or other investment account, consult your financial advisor, CPA, tax professional, and a qualified SDIRA custodian.

This article is for educational purposes only and should not be considered legal, tax, financial, or investment advice. Real estate investing involves risk, including the potential loss of principal. Investors should consult their own tax, legal, and accounting professionals regarding their specific situation before investing.