Using retirement funds as a down payment?

Question

Hey Everyone,

Just learned that you can use your 401 k and convert it to a self directed retirement fund and use that towards real estate investments.

What are the pros and cons of doing this and are there any gotchas along the way?

Also heared you can use self funded 401k to avoid additional taxes but aren't allowed to hire employees?  Are there better investments approaches to using retirement funds for real estate?  Thak You

Brett Synicky · Answer

@Steve Rembuskos,

Yes Solo 401k and SDIRA are the two vehicles to use for this.

Solo 401k is better cause no UBIT on leveraged real estate. But they both work. Some think it's best to use self directed retirement accounts to do private lending and to own real estate personally for tax benefits but owning a rental or two in your Roth account can be pretty sweet.

Understand prohibited transactions and disqualified parties. Also there are a ton of threads on BP about all this.

Steve Rembuskos · Answer

Thanks Basit!

Basit Siddiqi · Answer

i personally wouldn't use a retirement account to invest in real estate.Real estate investing is a tax advantaged vehicle that becomes null if invested with a retirement account.Some other reasons not to invest1) You potentially have to liquidate a property if you don't have sufficient funds to make repairs / renovations that are required.2) potentially selling of the property when you need to make required minimum distributions3) LTV if you want to get a loan are lowI would prefer to make notes with a retirement account.

Steve Rembuskos · Answer

@Brett Synicky Thak You!  Will definitely look more into this.