Author Topic: RealEstate investment inside solo401k  (Read 594 times)

h2ogal

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RealEstate investment inside solo401k
« on: October 22, 2018, 06:38:09 AM »
Hello,

Not sure if I should be posting here or in another section, so Mods, please feel free to move as needed.

I want to purchase a triplex and live in 1 Unit, and want to use $$ from my Solo 401k for down payment.

1. Do any of you Real Estate Investors do this?  (Hold your investment inside your 401k?)
2. If so, can you recommend a company you have experience with?  (My solo is with Fidelity, self administered, and they do not allow it, so I will have to transfer my 401k to a company that does allow it)
3. Do you know of any "gotchas" that a newbie may not be aware of?

Backstory is I Fired Myself in 2016, but DH owns business and never will stop working. I got bored, started my own IT Consulting LLC and opened a Solo401k at Fidelity and contributed to it last year and this year.   

We plan to keep the home we live in now, which is paid off.  The new home is being purchased because my business and DH business is coming more and more from a large City 2+ hours from our current location and we are spending +$12K on traveling there (per year) for the past 2 years.

I also have been wanting to diversify into Real Estate Investing for additional income.   My current portfolio exceeds $800K, is 75% in low cost index funds, rest in bonds and of that, I have $60K in the Solo 401k that I plan to use for downpayment, etc.   

This week I put an offer on a $400K property that looks like a positive ROI (using spreadsheets and advice from this forum).    I plan to live/work in the smallest apartment as my primary residence, add a new business address, and plan to keep the rest rented out most of the time. (I already have 2 tenants lined up).

I am eligible for a VA loan but not sure whether I will use that or not.

Any insight on RE 401k or other advice related to the situation is invited!

Another Reader

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Re: RealEstate investment inside solo401k
« Reply #1 on: October 22, 2018, 07:46:02 AM »
I can't speak on the solo 401 (k), but this would not permitted in an IRA.  Any personal use of the property would nullify the tax treatment.  All bills must be paid by the entity, not by you.  You cannot be the buyer or the borrower.  The IRA is the owner.  Getting financing is very difficult.

Seek advice from an experienced CPA on this matter.

Schwatt

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Re: RealEstate investment inside solo401k
« Reply #2 on: October 24, 2018, 09:19:21 AM »
VA is literally the best financing available. No down payment, and no PMI.
If you are buying property and can use it, you definitely should.

I realize this creates a 100% financed property, but my personal rule is if it doesn't make money with 100% financing, you shouldn't buy it.

onlykelsey

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Re: RealEstate investment inside solo401k
« Reply #3 on: October 24, 2018, 09:23:04 AM »
VA is literally the best financing available. No down payment, and no PMI.
If you are buying property and can use it, you definitely should.

I realize this creates a 100% financed property, but my personal rule is if it doesn't make money with 100% financing, you shouldn't buy it.
Unfortunately I don't think you can have recourse debt within a 401K, which makes financing basically impossible.  https://www.forbes.com/sites/greatspeculations/2016/01/26/how-to-buy-real-estate-with-leverage-in-a-401k-plan/#657b036a1b38

Also, all rents etc from the property have to go to your 401K, which may or may not work for you.

You need professional advice here, for sure.

afox

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Re: RealEstate investment inside solo401k
« Reply #4 on: October 24, 2018, 12:17:23 PM »
usually the 401k loans are for primary residence only.  you might be able to say its a primary residence.  are va loans good for investment properties?
as to choosing between VA and 401k you should put both in a spreadsheet and do the analysis to figure out which is cheaper.
in case you didnt know the term for your proposed housing arrangement is "house hacking", now you can start searching and reading about this stuff.

h2ogal

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Re: RealEstate investment inside solo401k
« Reply #5 on: October 24, 2018, 05:57:04 PM »
Thank you both.   I ended up eliminating this option as both me and my sister will live there some times.  I will occupy one space for at least 3 years.  I am doing a VA loan, but have not decided the lender.   I am getting quotes from USAA and also a local bank.

Anyone with suggestion on good VA lender let me know.

Love this forum!