Hey BP community,
So I have a question. If you utilize a Solo 401K to purchase an investment property are you able to use the BRRRR method by doing a cash out refi? I understand that the only type of loans available in a Solo 401K are non recourse loans but is there a way to cash out refi by using that type of loan?
Any advise advise and/or experience is welcome.
You can do cash-out refi on a property your Solo 401k owns, and yes you are correct - the loan to retirement account must be non-recourse. Here is a list of lenders specializing in these types of loans:
Keep in mind that if you are refinancing shortly after acquiring the property, most lenders will only be able to use purchase price as the value of the property. In order to use current appraised value with some lenders you may have to wait as much as 3 years. Therefore it may not be beneficial to you, you may as well just get a loan for the acquisition of the property.
Of course you may find local private lender and negotiate with them any terms you both agree to, as long as you don't provide personal guarantee for the loan.
Hope this helps!
Your thoughts? If the client structures LLC with wife as 80% owner, himself 10% owner and solo 401K as 10% owner, the wife should be able to refinance and sign the personal guaranty for a recourse loan. The solo 401K owner wouldn't be required to sign PG because they are less than 20% owner.
Under that LLC structure, would it be prohibited self-dealing because of the 401k being in a business transaction with both beneficiary and wife?
Spouse is considered “disqualified person” by the IRS and what you are proposing would create prohibited transaction.
Thanks for letting me know. What if the partners are not married?
The IRS doesn't take kindly to being fooled, especially when it comes to tax advantaged accounts. They can declare the entire retirement entity taxable, and impose a hefty fine as well. I wouldn't chance it. Better to just take a disbursement and pay the taxes.
If you're at a point in your life where you're eligible to take a disbursement, that is.