Solo 401 K investing

13 Replies

Greetings:

I have some money in my solo 401K plan that I would like to invest. I  would want to invest this money in real estate. I have checkbook control over the funds.

I am living in California and this being a seller's market my money is not enough to put down as down payment. I was approached by another investor that are investing in mobile home parks in the midwest. They are forming new syndication to purchase another mobile home park and want me to invest my money with them.

I don't know anything about this type of investment however they are claiming to be able to generate at least 8% annual return on the investment and share in the equity. They are going to form an LLC, and I will not be involved in any of the day to day decisions about the property. They will be hiring a property manager and fix up crew if the place needs work done.

Since this is my retirement funds I am not sure what is the best way to approach this. If anyone can give me pointers as far as doing my due diligence or if I should even be involved with such a deal I would be much grateful.

@Kamyar Farhang I don't know the answer myself so I won't give advice but wanted to comment that I work with an attorney in San Diego who specializes in retirement plans if you wanted to become a client of his.  He's in San Diego though, and probably wouldn't give out advice for free.  But, if you run into an issue, just throwing that out there as a resource.

@Kamyar Farhang you will be a passive investor and they are offering a securities. It should be set up as such. They can set up a 506(b) or (c), 504, or any other type of offering that fits the investment. When you invest with the 401k, be sure that everything is set up in your 401k custodians name with your account, not in your personal name. 

You can definitely use Solo 401k money to participate in syndication deals. Just make sure the sponsor is trustworthy and the deal works! 

You can also buy and hold properties under your Solo 401K

I wouldn’t do the deal.

With your 401K you are 100% in control and historically, the stock market has produced great returns if you just invest in a S&P 500 index fund and let it ride.

With the LLC idea there are many cons:

1) You are a passive investor and have no say on the operations of your investment.

2) 8% return for passive investments are easy to find if you search hard enough. Syndicators are always looking for capital. Have you explored all your options (other 8%+ opportunities) in the event you want to go down this path?

3) Do you trust the operators enough to give them your retirement money?

4) When can you withdraw your money?

5) What if the LLC faces litigation and your investment goes down to little to nothing, would you be ok? I know a guy who invested $2M in a syndicate. Years later he sold his equity for $20K to get out of it. The syndicate got into such bad litigation it destroyed his investment.

Bottom line, I don’t think your retirement money is something to take risk with as a passive investor with no control on your investment, however, it’s up to you on how much risk you want to take.

Originally posted by @Nick Foster :

With your 401K you are 100% in control and historically, the stock market has produced great returns if you just invest in a S&P 500 index fund and let it ride.

Bottom line, I don’t think your retirement money is something to take risk with as a passive investor with no control on your investment, however, it’s up to you on how much risk you want to take.

 I think the above two statements are pretty hilarious. Investing in Wall Street is the ultimate 'no control on your investment'.

Thank you for your reply, I would be happy to pay for sound advice. Do you mind giving me contact information for the attorney you mentioned? Thanks in advance.

Thanks for all the good advise above. I will defenitly think more carefully before investing my retirment funds. Thanks again.

Originally posted by @Michael Le :
Originally posted by @Nick Foster:

With your 401K you are 100% in control and historically, the stock market has produced great returns if you just invest in a S&P 500 index fund and let it ride.

Bottom line, I don’t think your retirement money is something to take risk with as a passive investor with no control on your investment, however, it’s up to you on how much risk you want to take.

 I think the above two statements are pretty hilarious. Investing in Wall Street is the ultimate 'no control on your investment'.


Please enlighten me on how investing in one of your syndications provides the investor more control over their investment, than a 401K account in the investor's name where they can buy/sell equities at anytime at their sole discretion. 

Originally posted by @Nick Foster :
Please enlighten me on how investing in one of your syndications provides the investor more control over their investment, than a 401K account in the investor's name where they can buy/sell equities at anytime at their sole discretion. 

 I never claimed that. However you did list out an entire list of cons for syndications, all of which are ten fold issues with Wall Street. It's almost as if you were listing out cons with stocks.

- You are a passive investor and have no say on the operations of your investment? Yes, definitely so with Wall Street.

- Do you trust the operators enough to give them your retirement money? Yes, definitely an issue with Wall Street.

- What if the LLC faces litigation and your investment goes down to little to nothing, would you be ok? ? Yes, definitely concern with Wall Street.

You do have more liquidity with equities for sure. On the other hand with syndicators you know them personally and have access to ask them questions. And generally you're investing in something easier to understand, something tangible. You can physically visit your investment and you have access to the bank statements, the general ledger, the P&L and rent roll. 

@Kamyar Farhang I'm a syndicator (and we have some solo401k clients investing in projects) but I have to agree with @Nick Foster on this one. Unless you'd be ok if the investment goes to zero do NOT invest.  There's lot of advantages but it's generally not the arena to bet your nest egg. All the best!

That is my feeling about this too. Since I want to be more hands-on this probably not going to work for me. Thanks for the reply. 

@Keith Anderson I would invest Passively in a syndication. The general partners will get the debt. If you were using a sdira I would caution to going into deals with debt because it will trigger udfi tax.

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