Our founder Lon Welsh has been a real estate investor for over 20 years. He is frequently asked by first time investors, “where do I get the down payment for my investment?” Many people don’t realize that the process for getting a down payment isn’t as hard as they think. He recommends two options when deciding how to finance your real estate investment, self-directed IRAs and non-recourse loans.
If you have money in your IRA, you can get what is called a “self-directed IRA”. A self-directed IRA allows you to use the money you currently have in the stock market to make a down payment on a rental house.
A non-recourse loan basically means that you don’t have to guarantee the loan. With most loans you have probably received in the past, like a car loan or credit card loan, you more than likely had to guarantee it. The non-recourse loans are different. The interest rates on these loans is higher. However, the rates are so cheap right now you won’t even notice. Additionally, with this type of loan, you won’t be able to borrow quite as much. Nevertheless, you can get a mortgage to help you buy investment real estate in your self-directed IRA.
Real Estate versus the Stock Market
Historically speaking, we would expect that you’d make somewhere around 15-20% per year on a five-year hold with a rental property. On the other hand, the stock market is more in the 7-8% range. By investing in real estate, you can make about twice as much over a long haul as you would with your current investments in the stock market. The incredible volatility of the stock market this year also contributes as to why real estate is a bit more stable of an investment.
If you are interested in looking for an investment property, contact a Your Castle agent today!