Can you invest in Real Estate Using 401k/self directed IRA's

4 Replies

Absolutely. My self directed ROTH IRA owns 4 houses. I'll never have to pay any tax on the rents and house appreciation since the tax was already paid on the front end. This is huge!

@Chris Collins Yes and many do. Trick is, you can't invest in your own deals, family members deals, etc. It's a provision that's built in. Typically the below are disqualified:

Disqualified Persons

  1. The SDIRA can not be used to fund projects for persons to include:

    1. Parents, grandparents, your spouse, your children, your grandchildren, and all of their spouses
  2. Additionally, the disqualified persons can not offer goods, services, or facilities regarding the investment, ie. contractor work, real estate commissions, etc.

Personal Benefit

  1. The SDIRA can not be used for providing personal benefit such as spending the funds on acquiring a new personal TV or car by transferring to personal account.

@Chris Collins

A self-directed IRA or Solo 401(k) plan can be a great way to diversify your tax-sheltered retirement savings.

As noted in prior posts, the key is that everything is done by and for the plan, with limited interaction from you and no injection of personal capital. The plan owns the property, as opposed to you owning the property using plan funds. Think of yourself as a fund manager for your IRA.

A BRRRR can be executed in an IRA or Solo 401(k). It will be somewhat less aggressive on timeframe and LTV due to the fact that the plan will need to obtain non-recourse debt. There are a handful of lenders that offer non-recourse loans and you will definitely want to speak with them as you evaluate this course of action.

There are also several quality providers of self-directed plans active here on BP with lots of posts on this topic.  Do a little reading, see who the experts are, and make some phone calls.  You will learn a lot more, a lot more quickly, in a few conversations than with hours combing the internet.  

@Chris Collins , yes you can invest in real estate using self-directed IRA

Can you use brrr strategy? Well, technically yes. Practically - it may or may not work for you. 

First, you personally are not allowed to do any work on a property your IRA owns.

Second, you can't use conventional financing. The reason being is that conventional lender will require you to personally guarantee the loan and that is now allowed by the IRS. You can still use leverage, but the loan must be non-recourse. Here is a list of lenders who may help:

The strategy you are referring to will require refinance after the property is fixed up, but most (if not all) lenders on the list above will require seasoning so you can only use purchase price as the property value, not the latest appraisal. 

Also keep in mind that use of leverage in an IRA will result in Unrelated Business Income tax on portion of the income, not a deal breaker, just be aware of it. If you are self-employed or own a business w/o full time employees you will qualify for a truly self-directed Solo 401k plan which is exempt from UBIT on income from debt financing, among number of other benefits

So the bottom line while brrr may or may not work for you, buying rental in an IRA works just fine. But my personal favorite investing in real estate notes or doing private lending with my retirement funds.