@Brant Richardson If you participate in an employer's plan, you cannot self direct it. If you have your own Solo 401K, you become the trustee, therefore your 401K is automatically self-directable (GREAT WORD!).
The reason you would want an LLC inside your 401K is asset protection. You want to segregate any house you own from the rest of your retirement assets. I see that you live in California, which is a royal pain in the plan. Your profile also says that you're interested in investing out of state, which is fine. When you create your LLC, your 401K becomes the sole member and organizer. If you're creating this outside of California, you'll need a representative in the state in which you do organize it. This person gets the mailings, etc. You will become the manager of the LLC. If your LLC makes a profit and reports it, it will file a K1 naming your 401K as the recipient. 401Ks pay no income tax, and if you do things right, it will pay no UBIT as well.
If you don't want to jump through the LLC hoop, your 401K can own the house directly, but then all the assets of the 401K become accessible in the event of a law suit.
I buy duplexes inside my 401K which are held in an LLC owned by my 401K. They're highly leveraged and I carry a lot of liability insurance as well. This strategy isn't for everyone, but they're in my Roth 401K, so I never pay short term capital gains, long term capital gains, health care surcharges, UBIT or income tax ever!
Caveat: This is not for the feint of heart.