Question fellow investors... I'm in the Texas market. I'm placing my personal home for sell and downsizing as a empty nester. Plan to also leave my job and transfer my 401k to a self direct IRA. My question..

1. I have found a landlord wanting to sell his 8 home properties with renters in place. ( this will most likely consume all my savings) or

2. Skip on this deal... Buy 1-2 homes and maintain some savings but start from

Scratch. ( found a fixer upper and have a contractor willing to work on all my properties at a discounted rate)

@Valeria Johnson have you considered negotiating a deal with just a portion of his portfolio? You may not be able to take all, but a few would be great to get started.

He is focused on selling them all but, in time; he may consider selling them separate. I m hoping that is the case

He is focused on selling them all but, in time; he may consider selling them separate. I m hoping that is the case

Thanks for the response 

If you have no experience in being a landlord, taking on 8 properties (with tenants that you have little information on) may not be in your best interest. Do you know how to evaluate the rental properties and their tenants? 

Are the 8 rentals performing well?

@Valeria Johnson

If you are self-employed with no full-time w-2 employees, you can set up a Solo 401k & rollover funds from a non-Roth IRA as a tax-free direct rollover and then invest in real estate.

Solo 401k vs. Self-directed IRA

A Solo 401k has several advantages as compared to a Self-Directed IRA including the following which specifically apply to your situation:

• Unlike a Self-directed IRA, you can have the account for the Solo 401k at a bank or brokerage that does not charge maintenance fees and where you will have checkbook control.
• Unlike a Self-directed IRA, if you use leverage (which must be non-recourse financing in either case) to acquire real estate with your Solo 401k the income will not be subject to Unrelated Debt Finance Income tax

General Considerations Re Investing Retirement Funds in Real Estate:

1. If you purchase via an IRA (as opposed to a 401k), you will need to open an IRA account at a specialty trust company which allows for investments in real estate. Unless you invest via an LLC owned by the IRA, you will not have checkbook control over the funds which means you need to run transactions (e.g. income, expenses, etc.) through the trust company who will need time to process the transactions and generally charge fees for each transaction. On the other hand, keep in mind that there are costs associated with maintaining an LLC (such as the $800 annual franchise tax in California).

2. If you are self-employed with no full-time employees, you can set up a Solo 401k through a 401k provider which allows for investing in real estate. In that case, you can simply have the account at a bank or brokerage where you will have direct checkbook control.

3. In either case, all of the income and expenses will need to flow in and out of the retirement account.

4. In either case and if you will you debt to acquire the real estate, it must be non-recourse financing. See more at the following link: https://www.biggerpockets.com/blogs/9552/70408-ira... If debt-financed real estate is acquired via an IRA, any income attributable to such investment will generally be subject to unrelated debt finance income tax.

5. In either case, you can't live on the property or otherwise use it for personal use.

6. In either case, you can't work on the property as it must be a passive investment (e.g. you must hire someone to fix the toilet and can't pay the expense with non-retirement funds).

7. In either case, you must purchase/sell real estate from/to an unrelated person and the real estate can't be titled in your name personally (e.g. in the case of the 401k, it would be titled in the name of the 401k and you would sign as trustee of the 401k).

8. In either case, you should verify that you are eligible to transfer the funds from your existing retirement account (e.g. if the funds are in your current employer 401k, you will likely not be able to transfer until you quit your job). 

Thank you for the detailed response. It is very much appreciated. The solo401k sounds to be my better move. I have considered this as well but need to firther investigate all options. The most costly but less technical would be just closing out the plan. I will incur tax and penalties because I am not 55. I may simply leave the 401k alone and invest with the equity from my home . Thanks again 

Val 

@George Blower

Thanks for your response. I have recently sent you an inbox question and request info on setting up a solo 401k.

Thank you

Originally posted by @Valeria Johnson :

@George Blower

Thanks for your response. I have recently sent you an inbox question and request info on setting up a solo 401k.

Thank you

Thank you for your message. Please see my reply.

@Valeria Johnson

The Solo 401k is likely the best retirement account for those who are eligible and interested in real estate investments. While you cannot use the funds in your own immediate interest (except for the participant loan feature), the plan can be a great way to utilize and grow your retirement funds.

• Compared to an IRA, Solo 401k contribution limits are roughly ten times higher.
• You can borrow up to $50k from the plan; IRAs do not allow participant loans
• There is no custodial requirement for the 401k.
• You don't need the additional expense and administration of an LLC to have checkbook control.
• There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.
• A spouse can also participate in the same Solo 401k plan.
• The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.
• The penalties for prohibited transactions are less severe, though it's best not to utilize this benefit :)