Solo 401k

[Shawn C.]

Hi BP. I am an full time employee and hold a real estate license on the side. I have one sfr that I'm holding with plenty of equity but it is under long term lease agreement and I don't want to leverage HELOC as I intend to cash out when the lease is up.

I have an old 401(k) that I want to convert to a self employed solo 401k so I can direct the funds in to real estate investments while leveraging debt and evading the UBTI expense that comes with a self directed IRA when leveraging debt.

Can I use Solo 401(k) as source of funds to pay 25% down and leverage debt for remaining principal amount to purchase a duplex that I will owner occupy and rent the other unit? How do I pay the returns back to the 401(k)? Can my LLC hold the deed? Does the 401k hold the deed?

Thank you for your expertise or guidance to find this knowledge.

Shawn C

[Brian Eastman]

@Shawn C.

There can be no direct or indirect benefit between you and the plan, and the fact that you would occupy a unit of the duplex is a 100% deal-killer for an IRA or 401k.

You could use a Solo 401k to purchase a property held entirely by the 401k, and to which all expenses and income are attributed to the plan.

A 401k (or IRA) can use non-recourse financing, but typically non-recourse lenders will want to see more like 35-40% down and a minimum of 10% cash in the plan for reserves.