Rental Property Investor · Fort Wayne, IN · Member since 2014 · 251 posts · 129 votes
Hey everyone!,
I recently set up my Solo 401(k), and will soon be up and running! I am curious to know - what is your preference for your Real Estate dealings within your Solo 401(k)? Flips or Buy and Hold?
I am also in the process of setting up my Solo 401(k)! For my first purchase, I'm buying a non-performing note with a partner.
I am certainly not a tax expert, but Tom Wheelwright (the CPA and Rich Dad/Robert Kiyosaki advisor) advises to NEVER put one tax-advantaged strategy (such as rental property) into ANOTHER tax-advantaged strategy (an IRA or 401(k)).
There are a couple of reasons why... The beauty of rental properties include:
Tax deductions - but since IRAs and 401(k)s don't file or pay income tax, you lose the tax benefit if the property is held in one, and
Leverage - YOU can put a % down and get a mortgage for the remainder, but your 401(k) or IRA will have a MUCH harder time doing this!
So if you are trying to decide between a flip or a buy/hold in your 401(k), I would suggest the flip. BUT, there are other things you could do with your 401(k) too: hard money lending, buying vacant land for appreciation, buying notes...
If you REALLY want to go the buy/hold route, you could make yourself a loan from your 401(k) (being careful about the rules and limits), buy the property in your personal name, and make loan payments back to your 401(k). That way, you still get the tax advantages of the rental property AND you can use leverage (you don't have to pay 100% cash for the property).
Is there any issue with you being the person who fills out the bidding sheet. I have read that when your buying a house via a managed IRA, the custodian signs the purchase agreement and such. I guess I am asking if you can sign on behave of the custodian.
Check with your IRA custodian, some will allow you to sign some documents, essentially documents not recorded, while other custodians don't want you singing any documents.
It is cumbersome when there are offers and counteroffers back and forth, and you need the custodian to sing/initial each change.
Thanks for the clarification I was wondering about that. Just kidding. I want to thank you for your input. I was ready to move forward with that checkbook approach with several 100k. Since them I have dug deeper and found the irs is now requiring this information be conveyed to them. Sounds like am audit trigger. I would like to talk with you at some point. I am investing in your area and looking to do more business down there. Thanks again.
@Account Closed as far as the signing for a Checkbook Control Account goes it is not that hard but it IS very specific... My SDIRA is in a 3 way LLC that actually has the 'checkbook control' and one of the other members in the signer, but it has to be something like "John Doe, Managing Member on behalf of 3D Properties LLC" of something like that. The point is to make clear that you are signing on BEHALF OF the LLC, not as yourself.
David the article I read made it seem that in 2014 the checkbook information was an optional piece of information to share, and that in 2015 it was going be mandated. Anyway I would rather pay a little extra and not worry about it.
IMO I would never put rentals into a SOLO or any other retirement vehicle. I have a SOLO. I do first lien mortgages. My most recent was just last week. 1st lien, 12% plus 4 points. Two years interest only. No prepayment penalty. I have had pretty good success and have some mortgages that are at higher rates and with points. I won't put a rental into a SOLO (unless I need the money FAST and cannot fund it myself and cannot find private money). Doing so you lost your tax advantages. You don't have to claim income that goes into your SOLO but you lost all your writeoffs. I suggest 1st lien mortgages because they can be pretty much hassle free and make a good return. Do fix and flips...or better yet buy and holds outside your retirement account and max out your tax advantages. Do the mortgages inside your retirement account. You can have the best of both worlds doing this.
If you want to flip real estate inside a 401k plan, the ROBS 401k/PSP will allow for it as long as the business is setup as real-estate operating company. When a ROBS is used to flip real estate, UBIT does not apply. However, UBIT applies to a self-directed solo 401k that is used to flip real estate.