Questions on Partnership with LLC and 401k

[Logan Turner]

Ive reached out to a few real estate attorney, still awaiting a response. So I wanted to run it by some pro investors on BP. I am purchasing a property through a JV. My LLC will be the active manager, my partner will supply the funds via his self directed solo 401k. Should I seek out a security attorney? Estimated cost? Will we need to form a trust which my LLC and his 401k both have equitable interest? Do we need to open a new bank account for this trust, or will my business checking account work? I’ve done private lending and understand that dance and I’ve attended a syndication seminar but seems overkill for a SFH- flip. What’s the cleanest, cheapest and best way to do this? Basically just splitting profits 50:50 Thanks

[Brian Eastman]

@Logan Turner

No entity is required. Your LLC and his Solo 401(k) can simply vest title jointly as tenants-in-common. Both entities provide a level of separation and asset protection for each of you, and an entity would require a tax return. You should probably work with a real estate attorney to draft some kind of joint venture contract to protect your respective interests and keep things on the straight and narrow. This can be especially beneficial if one partner has outside issues that impact their position such as bankruptcy, death, divorce, etc.

Keep in mind, flipping is a trade or business.  If his SoloK is receiving equity participation in the profits, and doing such types of transactions on a regular or repeated basis, then UBIT taxation will apply.  He may be better off simply being a lender and receiving passive interest.