Process for using 401K for REI.
BP Family,
I live and work in the Northern Virginia area. I am just starting to invest in this area and I have a cash partner that has a little over $200K in a 401K that he would like to invest in some properties with me. (I have experience investing outside of Virginia, but would like to pick up some properties here)
This question that I have is, how exactly do we use a 401k for RE Investing? I have read several of the other forum posts and responses, but what I don't understand are the exact steps.
If, I split all profits with the cash partner that is using a 401K, how do we put the funds back into his account? If the original balance and proceeds need to go back into the 401k, how do I make sure that I can retain my split?
Additionally, if anyone knows a CPA or RE attorney in the area, I would love some referrals. I have just recently obtained my RE license and am actively looking to flip SFRs in Warrenton, Culpeper, Winchester, Haymarket, Gainsville, and maybe Fredricksburg. Long term I am looking at mid to large multifamily properties in those areas.
Thanks,
Dan
Hi Dan,
Who are you licensed with? I am retired military and licensed at Pearson Smith. I live in Ashburn. I can refer you to a great CPA, but he is out this way. Let me know!
Steve
Good question. Most often when a solo 401k invests in real estate, title to the property is taken in the name of the solo 401k. The income then flows back to the solo 401k which then continues to grow on a tax deferred basis.
Hi Dan,
One place that you or your friend can find good information about the best ways to use retirement money is mysolo401k.net.
He needs to set up a self directed IRA (there are a few options). The one that I have is the check book control.
He can just loan you the money or partner up with you in the deal.
There are may rules to fallow. But is not that difficult.
Good luck.
Depends on what type of 401K you have. Some will only allow you to withdrawal 50% or $50K, whichever is less. When you take out the $50K, you have to pay it back within a particular amount of time. I believe the longest you can go is 5 years. There is an interest rate contributed to doing this BUT instead of paying that money to a bank, the money goes into your 401K!!!! The pay back is spread evenly and automatically taken out of you pay check.
Thanks for your response. That actually really helps to clear up my confusion about how the income from a producing asset is handled with using a 401k. I assumed that the borrower had to use some sort of repayment schedule, but I wasn't clear how the profits were to be handled.
My next question would then be, I do I use funds from a cash partner that wants to use his 401K? I'd prefer not to have the title go directly to the JV partner. Perhaps taking title as joint-tenants or tenants in common would work.
Thanks,
Dan
Thanks for the response. I have had a conversation with my JV partner about using a self directed IRA instead of the 401k. I just am not sure of the tax implications of switching from a 401k to a self directed IRA.
This is one of the reasons that I am looking for a real estate CPA in the Northern Virginia area.
Also, thanks for the recommendation to look at mysolo401k.net I'll check it out.
R/
Dan
Thanks for your response. My JV partner is still with the same company that he has the 401k with, but will be retired within the year and is starting his own company.
Have you used your own 401K to invest in real estate? If so, what type of interest rate was associated with your withdrawal?
Thanks,
Dan
Nice to meet another vet on the site! I would love a CPA recommendation from somebody out that way. I am around the Ashburn are frequently.
Are you an investor as well as an agent?
Originally posted by @Dan Call:
BP Family,
I live and work in the Northern Virginia area. I am just starting to invest in this area and I have a cash partner that has a little over $200K in a 401K that he would like to invest in some properties with me. (I have experience investing outside of Virginia, but would like to pick up some properties here)
This question that I have is, how exactly do we use a 401k for RE Investing? I have read several of the other forum posts and responses, but what I don't understand are the exact steps.
If, I split all profits with the cash partner that is using a 401K, how do we put the funds back into his account? If the original balance and proceeds need to go back into the 401k, how do I make sure that I can retain my split?
Additionally, if anyone knows a CPA or RE attorney in the area, I would love some referrals. I have just recently obtained my RE license and am actively looking to flip SFRs in Warrenton, Culpeper, Winchester, Haymarket, Gainsville, and maybe Fredricksburg. Long term I am looking at mid to large multifamily properties in those areas.
Thanks,
Dan
Checkout PBMares for a good VA CPA, we've used them for years
Thanks for the recommendation. Looks like they even have a rep here in Warrenton near me.
I know that you are very active in this area, have you used a JV partner that wanted to bring cash through a 401K?
R/
Dan
Originally posted by @Dan Call:Thanks for the recommendation. Looks like they even have a rep here in Warrenton near me.
I know that you are very active in this area, have you used a JV partner that wanted to bring cash through a 401K?
R/
Dan
They where PBGH for years, then they merged with another firm and have offices all over the area. I recommend them. They have been one of the best tax firms I've used out of all the years I've owned businesses. Try to get one of the partners to be your CPA, they got a bunch of them.
I have and do use cash partners. 100k minimum is the requirement. Cash partners cut a check and enjoy a regular payment, no work or stress with the investment, my team handles it all. I don't think anyone that I can recall has used a 401k with us as of yet, but I'm open minded if your legal can sort it out. Best
I did use my 401K to invest in real estate. The interest rate is 3.5% (I use T Rowe Price)
How did the process work out for you? Did you have a repayment schedule with your company?
I would also like to know if you took title in severalty? I am trying to bring in a JV partner, but it looks more and more like it would be significantly easier if we used a self-directed IRA, as @Miguel Rubio mentioned.
Thanks,
Dan
You are getting a wealth of information on this thread. Great responses to all. I would like to make myself available to discuss in person especially with a deal in mind. I live in Winchester. I do business in NOVA as well. I am seeking to continue team building and network.
Thanks for the offer, I don't have a specific deal in mind right now, but I am actively looking for deals. I am looking in Winchester, Warrenton, Culpeper, Haymarket, Gainsville, Front Royal, and Fredricksburg. (I can be much more specific, just want to stick to the topic) I am looking for SFRs and small mufti-families to hold and to fix/flip SFRs for cash. I do have capital and a couple of JV partners. Just trying to make sure that I putting the deals together correctly with JV money.
Thanks,
Dan
Thanks again. I come down your way about once or twice a month. Would love to link up some time and see how I maybe able to add value to your operation.
R/
Dan
Originally posted by @Dan Call:Thanks again. I come down your way about once or twice a month. Would love to link up some time and see how I maybe able to add value to your operation.
R/
Dan
Anytime man, Im always around the region looking at deals from here all the way to Manassas. Just give me a shout!
I've also done a 401k loan for REI through Fidelity. The process was ridiculously easy. Basically went on their website and filled out a quick form and the check was mailed within days.
I took the max available, which was 50k with a 5 year term. I know that it varies based on your company's agreement with the custodian.
I'm paying myself back at 4.5%, with semi-monthy payments of about $465 that comes out of my paycheck. I also have the option to make additional payments on the website.
Todd Krzeminski ,
Thanks for you joining the conversation. Was the request for cash tied directly to the property, or was it just like a checkbook line of credit?
Also, was it a 50k max per transaction? Or can you borrow more before you pay back the initial withdrawal?
One of my JV partners was also interested in performing and non-performing notes.
Thanks,
Dan
Originally posted by @Dan Call:
Todd Krzeminski ,
Thanks for you joining the conversation. Was the request for cash tied directly to the property, or was it just like a checkbook line of credit?
Also, was it a 50k max per transaction? Or can you borrow more before you pay back the initial withdrawal?
One of my JV partners was also interested in performing and non-performing notes.
Thanks,
Dan
It was just a lump sum. The money can be used for any purpose (e.g. pay down debt, buy a car, etc), so it's not tied to a specific investment.
In my case, I can only have one loan at a time. My company used to allow at least two at a time, but they changed the policy recently. Unfortunately, it seems to be dependent on the employer so your partner will need to check with his/her HR department.
Thanks Todd, that is helpful. I think I will be able to use this strategy in combination with a self-directed IRA to execute.
Much appreciated.
R/
Dan