Have you bought a home or investment property using your 401K?

Rental Property Investor · Asheville · Member since 2019 · 40 posts · 8 votes

Hi! I write for Realtor.com and am looking to interview someone who used their 401K to buy either a home for themselves or an investment property. Is this you? If so, can I interview you for a story? Thanks! If you have questions, please message me. Happy to answer.

#401K

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Joe HomsBusiness Member

Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes

@Brooke Morton yes, I have, but not a home for myself since that is not allowed. I use a self-directed 401k account that was set up by @Dmitriy Fomichenko may years ago. I love it.

Good Investing...

[email protected]949-625-4533

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Joe HomsBusiness Member
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
3y
@Brooke Morton yes, I have, but not a home for myself since that is not allowed. I use a self-directed 401k account that was set up by @Dmitriy Fomichenko may years ago. I love it.
Good Investing...
[email protected]949-625-4533
2 Reply
Michelle Salonga
Member since 2023 · 4 posts · 1 vote
3y
Hi @Brooke Morton i certainly did. Just last year, i closed out my 401K and purchased my investment STR property. Do i regret it? No. My 401k was losing money from stocks real fast, so i bought property.
1 Reply
Brooke Morton
OP
Rental Property Investor · Asheville · Member since 2019 · 40 posts · 8 votes
3y
@Joe Homs, what did you buy? An investment property, but what kind? Thanks!
0 Reply
Joe HomsBusiness Member
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
3y
@Brooke Morton I have purchased rental properties, done hard money lending and other things as well.
[email protected]949-625-4533
0 Reply
Shivam Patel
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
3y
Quote from @Michelle Salonga:

Hi @Brooke Morton i certainly did. Just last year, i closed out my 401K and purchased my investment STR property. Do i regret it? No. My 401k was losing money from stocks real fast, so i bought property.

Whats the process, how do you initiate this.
0 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
Quote from @Brooke Morton:

Hi! I write for Realtor.com and am looking to interview someone who used their 401K to buy either a home for themselves or an investment property. Is this you? If so, can I interview you for a story? Thanks! If you have questions, please message me. Happy to answer.

#401K
I’ve been investing in real estate and real estate notes through my self directed Solo 401 K since 2014. Before that I invested in the same through my defined benefit plan I had set up for myself in my company.
Various properties I purchased in my 401K include
1. 4 investment high rise condos in Phoenix, Az area in 2011 - 2012
2. Retail Shopping Center in Houston, Texas
3. Land being held for apartment development in Montgomery County, Texas
4. Auto Repair facility in Lindale, Texas
5. 30 + mortgage loans secured by both commercial and residential investment property nationwide
6. Various limited partnership interests in 60 + hard money private mortgage loans secured by commercial real estate and limited partnership interest in an office warehouse in Magnolia, Texas
7. Restaurant/Bar building in Joliet Illinois

If this matches your needs feel free to contact me
Private Mortgage Financing Partners, LLC
Website View Page
1 Reply
Michelle Salonga
Member since 2023 · 4 posts · 1 vote
3y
Quote from @Shivam Patel:

Quote from @Michelle Salonga:

Hi @Brooke Morton i certainly did. Just last year, i closed out my 401K and purchased my investment STR property. Do i regret it? No. My 401k was losing money from stocks real fast, so i bought property.

Whats the process, how do you initiate this.

I just closed out my 401k, waited for the funds and hunted for the right property. Now my property is listed on AirBnb catering to both STR and MTR tenants.
0 Reply
Shivam Patel
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
3y
Did you have to pay taxes when you pulled out 401k. I thought you have to pay taxes or do some sort of loan from the 401k? Also do you have to buy the whole property in cash if you pull from the 401k or can you use partial for down payment and have seperate bank financing for rest?

Quote from @Michelle Salonga:

Quote from @Shivam Patel:

Quote from @Michelle Salonga:

Hi @Brooke Morton i certainly did. Just last year, i closed out my 401K and purchased my investment STR property. Do i regret it? No. My 401k was losing money from stocks real fast, so i bought property.

Whats the process, how do you initiate this.

I just closed out my 401k, waited for the funds and hunted for the right property. Now my property is listed on AirBnb catering to both STR and MTR tenants.

0 Reply
Jeremy Ray
Rental Property Investor · Southern NH, Northern MA · Member since 2023 · 8 posts · 3 votes
3y
With a self-directed IRA you can buy rentals, flips or even do hard money loans out of it to other investors. Easiest way to manage it is to set up an IRA/LLC.
2 Reply
Shivam Patel
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
3y
Quote from @Jeremy Ray:

With a self-directed IRA you can buy rentals, flips or even do hard money loans out of it to other investors. Easiest way to manage it is to set up an IRA/LLC.
Ahh I see. So I can actually set up an LLC. Transfer my funds from 401k to the LLC and buy property. I'm surprised they allow that because that's all pre-tax dollars. I thought you'd get hit with a giant tax bill the second you pull it out. Unless the LLC with property in it with the tenants paying the LLC is now considered the IRA. But if that's the case, then is it all pre-tax earnings from the rental? And can you still take the tax benefits for deductions (property tax, closing costs, insurance, depreciation, etc) for it because technically you didn't pay tax on it? What taxes can you deduct if it turns into a self directed IRA utilizing pre-tax dollars?
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Jeremy Ray
Rental Property Investor · Southern NH, Northern MA · Member since 2023 · 8 posts · 3 votes
3y
@Shivam Patel, not sure about the deduction piece. Best to ask a CPA about that. You would need to get a SDIRA custodian like Rocketmoney, Alto or Equity Trust. Some of them can help with the LLC setup. The LLC kind of sits inside the SDIRA. It can also be a partner on deals as well. One investor could be "John Smith" and the other could be "Shivam Patel SDIRA LLC". All income goes into the LLCs account and expenses paid out of the account. The custodian is also involved in the process, particularly when you sell, etc. I'm by no means an expert on SDIRA, just know the basics I guess…
1 Reply
Shivam Patel
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
3y
Quote from @Jeremy Ray:

@Shivam Patel, not sure about the deduction piece. Best to ask a CPA about that. You would need to get a SDIRA custodian like Rocketmoney, Alto or Equity Trust. Some of them can help with the LLC setup. The LLC kind of sits inside the SDIRA. It can also be a partner on deals as well. One investor could be "John Smith" and the other could be "Shivam Patel SDIRA LLC". All income goes into the LLCs account and expenses paid out of the account. The custodian is also involved in the process, particularly when you sell, etc. I'm by no means an expert on SDIRA, just know the basics I guess…

Good to know. I don't know too much as well haha. I'm at my third rental and still feel like a newbie. Trying to grasp as much as I can you know haha.
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Brooke Morton
OP
Rental Property Investor · Asheville · Member since 2019 · 40 posts · 8 votes
3y
Has anyone cashed out their 401K to buy a first home for themselves?
0 Reply
Jeffrey DixonPro Member
Irvine, CA · Member since 2014 · 94 posts · 44 votes
3y
You set up an IRA, move funds from the 401k into the IRA. The LLC is formed later. The IRA buys the initial shares of the LLC and the IRA custodian moves the funds in the IRA to this LLC. You cannot move the funds in the 401k directly to the LLC. That is prohibited issue.
2 Reply
Randy Rodenhouse
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
3y
@Brooke Morton I setup a Solo 401k which allows all allowable transactions in 2012 and have bought real estate, mortgage notes, private lending, etc within the 401K. I rolled one of my small 401k accounts from my prior employer (after I left that job) into a Solo 401k and grew it from $95,000 to over $1.5 million and have received over 1000 payments all documented. It is very powerful. I also did this with a SDIRA (self directed IRA ) account and now have millions in tax free dollars. I am happy to talk to you about an interview.
1 Reply
Elizabeth Block
VA · Member since 2023 · 14 posts · 7 votes
3y
Quote from @Brooke Morton:

Has anyone cashed out their 401K to buy a first home for themselves?

That is not allowed. The property held by the 401K or IRA self directed has to be at arm's length from you, your spouse, children. Equity Trust can explain more about that.
0 Reply
Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
3y
Quote from @Elizabeth Block:

Quote from @Brooke Morton:

Has anyone cashed out their 401K to buy a first home for themselves?
That is not allowed. The property held by the 401K or IRA self directed has to be at arm's length from you, your spouse, children. Equity Trust can explain more about that.

Elizabeth, I believe you misunderstood the question. You can't buy a personal residence in your IRA or 401k, but you can certainly cash out your IRA/401k (subject to taxes and penalties), then do whatever you wish with the proceeds, including buying a personals residence.
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Elizabeth Block
VA · Member since 2023 · 14 posts · 7 votes
3y
Ah yes, I missed the cashed out.
0 Reply
Jean-Francois T.
Member since 2021 · 9 posts · 1 vote
3y
My understanding is that if you have an active business or take on debt in your SDIRA, you are subject to taxes (UBIT/UDFI) and that you're not subject to UDFI with solo 401k.
Unfortunately, I'm a W2 employee and have only a SDIRA. How do you suggest how to invest in real estate with an SDIRA ? Is it worth owning a rental property in a SDIRA?
0 Reply
Jeffrey DixonPro Member
Irvine, CA · Member since 2014 · 94 posts · 44 votes
3y
That your IRA might owe some taxes does not mean it is a bad investment. You need to calculate the return your IRA would get after paying the taxes. If it is still better than the current investments you are making with the funds, it may be a good investment.
1 Reply
Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
3y
Quote from @Jean-Francois T.:

My understanding is that if you have an active business or take on debt in your SDIRA, you are subject to taxes (UBIT/UDFI) and that you're not subject to UDFI with solo 401k.
Unfortunately, I'm a W2 employee and have only a SDIRA. How do you suggest how to invest in real estate with an SDIRA ? Is it worth owning a rental property in a SDIRA?
Jean-Francois,
This is pretty simple decision. Let's say your IRA is currently invested in mutual funds and you generate an average of 8% return. You have the option of converting it into self-directed IRA and buying a rental property with it, the returns that you can generate with rental are 20%+ but it will cost you couple hundred dollars in UBIT. Which one would you do?
2 Reply

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