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Recently, surveys show that there is a growing demand for upscale rental apartments. This presents a potential opportunity for real estate investors all over the country. Plan holders of Solo 401k accounts can also capitalize on this latest real estate trend, as it is also an opportunity to invest and grow their retirement funds.

Latest study shows that young professionals nowadays prefer renting to buying their homes. The reason is that credit market is now tightened and it is harder to qualify for a home loan. The shifting job market and the likelihood of changes in personal life such as marriage and divorce are also reasons for which young people are more hesitant to commit to a property purchase. Plus, upscale rental apartments can offer high-end amenities, such as a swimming pool or a gym. If a young professional were to buy her first home, it would be unlikely that she would be able to afford a property with such luxury.

Because of this growing trend, investors are now looking at this demand as a great investment opportunity. This demand can be capitalized by plan holders of Solo 401k accounts as well. A Solo 401k account, also known as an Individual 401k, is allowed to invest in real estate, including rental apartment buildings.

Investing in real estate with a Solo 401k, plan holders will enjoy many benefits over other retirement plan. The first benefit is the high Solo 401k contribution limit, which allows account holders to stash away up to $52,000 per year as of 2014. Plan holders who are over 50 years old can also make an additional catch-up contribution of $5,500 per year. The total annual limit for this group is $57,500. Since account holders can contribute more into this tax-deferred account, they can gather enough funds faster to invest in real estate.

If account holders do not have enough money in their retirement account even with the high contribution limit, they will still have other financing options. Unlike a traditional IRA account, a Solo 401k is allowed to use non-recourse financing for real estate purchases. If an IRA account obtains financing for their purchases, it will trigger an Unrelated Business Income Tax (UBIT). This doesn’t apply to a Solo 401k, however, and account holders can certainly leverage their investment. This is definitely a powerful advantage for upscale rental properties, which requires intensive capital up front.

Investing in rental properties is a good way to create steady passive income. The return is also more predictable, especially after the lease is signed. Not only that, with the introduction of the Solo 401k plan, now investors can use rental properties to diversify their retirement portfolio and capture the opportunities presented by this newest trend.

Americans seem to push back their retirement further and further, and sometimes not by choice. Especially for self employed small business owners and independent contractors, many dedicated all their wealth and effort to grow their business. At the end of the day, however, people still need to figure out a way to be able to retire. Self employment retirement plans and rental income can be a viable solution.

What are self employment retirement plans?

Self employment retirement plans, or often called Solo 401k plans, are created for self employed individuals. Unlike traditional retirement plans, a Solo 401k allows investments in assets other than stocks and bonds. That means rental properties, among many other options, are allowed.

Rental properties to provide income during retirement

Plan owners of self employment retirement plans can certainly look at rental properties as an income source during their retirement. Rental income is also known as a source of passive income, which means investors do not have to keep working on the investment to generate profit. This allows them to earn income when retired.

This long term investment offers good passive income that can also guard against inflation. As landlord, you can adjust the rent every year to overcome inflation rate.

To ensure a good return, here are a few things to look for in rental properties:

- Location: As true with properties, a good neighborhood will attract more buyers and renters. As a retirement investment, however, it is also wise to choose a place closer to where you live. This way, managing and maintaining the property is not too much of a hassle.

-Size and build: Decide if you would like to start with a single family home, a duplex, or larger. The size and layout of the properties need to fit with your needs. Also try to invest in newer houses, to avoid high repairing and maintaining cost and hassle.

How to finance a rental property

Start contributing to the self employment retirement plans as soon as possible. By doing so, you can take advantage of the high Solo 401k contribution limit, enjoy tax-deferred benefits, and to save up funds to finance the rental properties. Even if you don’t have enough in the Solo 401k account or do not want to pay cash up front, there are financing options available. With an IRA, the use of financing to fund a real estate purchase could trigger Unrelated Business Income Tax (UBIT). A Solo 401k, however, allows the use of non-recourse financing, tax-free.

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Lately, more than ever, I have been getting calls from agents who are all asking the same question and, that is, “are you working any offers on 666 Money Pitt Lane”

Well, before I tell you my typical response, I would like to share some insight and see if you agree.

Per Realtor.com,

“An agent is bound by certain legal obligations. Traditionally, these common-law obligations are to: Put the client's interests above anyone else's; Keep the client's information confidential; Obey the client's lawful instructions; Report to the client anything that would be useful; and Account to the client for any money involved.”

So, here are my questions.

1. Is it in your clients interest to reveal to other agents that you are or are not working other offers?

My argument is NO, it is not in your client’s interest to reveal that you are or are not working other offers.

Simply put, when answering the question, you don’t know the motivation behind the person who asked it. We can get into a bunch of “what if” questions but, ultimately if by answering the question the agent decides not to show the home or not put in an offer then, you just hurt your own client. Ultimately my job is to get as much for my client as possible in the shortest amount of time and that means, getting as many offers in the door as possible. I could be wrong but, I suspect that the main reason Realtors ask this question is because they want to avoid being in a multiple offer situation or they want to be in better negotiating position. I guess that’s all fine and good but, it’s not my job to make that so for another agent and their buyer.

Now, let’s flip the script a little here.

Do you think my argument is valid for bank owned properties? What about Fannie Mae properties? HUD properties?

I won’t answer that question for you, I would love to get your responses.