All Forum Posts by: Jeff Barnes

First question, how did you use your 401k to set up the C-Corp? Did you use the ROBS strategy and have your C-corp adopt the plan?

As for leveraging property, I've been told by friends in the banking world that they basically want a direct line to the leveraged property, not just assurances from a balance sheet. I had a friend who recently lost out on a business opportunity because he had no assets to leverage and secure with a mortgage, even though the business venture is sound and profitable from day one...and he was putting 20% into the business himself and getting 10% carried by the seller. The bank wants a security on the property or asset in case anything goes wrong, and a C-corp provides you with more protection than they would care to allow (i.e. very little personal liability at stake).

Banks are strange, and I just try to avoid them whenever possible. Why not seek out other private investors and have them sign a note over to you and go that route? Or, try getting other folks their own SD 401k or IRA, and have them cash you out for either equity or a promissory note.

Sabrina Carapia- you can invest using your 401k if you are able to roll it over into a Solo 401k. This is a strategy we teach our clients so they can maximize their investment return.

Investing in Notes is a very good alternative as well if you do not want to invest straight into a property.

However you decide to invest (IRA, 401k, directly), just be aware of what you are getting yourself into. You cannot "self-deal" when using retirement accounts, regardless of what people tell you. It is always better to err on the side of caution rather than lose all of your investment proceeds to the IRS by trying to game the system.

I'd recommend researching your investment strategy and learning from people who have been through the same process before beginning. Good luck!

Personally, I wouldn't want such a loan due to the short time frame, inflexibility of the rules, and the fact that the IRS is the entity holding you to the fire- not one I'd want to cross personally.

One option worth looking into is setting up a self-directed 401k, and then convincing your current employer that you want to be able to rollover your 401k to another "custodian" (i.e. you). Most employers won't understand this, so it can be an uphill battle.

Another option is to setup a Self-Directed Roth 401k, and then transfer your funds there. The downside is that you would pay the taxes for transferring out of the traditional 401k. The upside is that you can now invest after-tax dollars into your SD Roth 401k and it will grow tax free.

It really depends on how squared away all your documents and accounts are to begin with.

With a self-directed account, the process will likely take 1-2 months because you will have to setup the account, submit all the necessary paperwork to initiate a rollover, and then the funds will have to sit in your new fund for a short period so that they can be verified.

For a SD 401k, you have the added steps of setting up your business, getting a trust account setup, and then getting your bank to open a trust account for you. One caution I would make if going the 401k route- just tell your bank you want a trust account with your 401k's name, but don't tell them it is a 401k account right off the bat. They get very confused and frightened by this, even though it is just a normal checking/savings account for a trust.

In my opinion, the best strategy is to have the accounts setup and ready well ahead of needing the money, and then just rollover the money when you are ready to invest in real estate (or any other alternative investment). The rollover should take between 2-4 business days depending on your custodian, but it can take up to two weeks. Again, that is assuming all your paperwork and accounts are already in place.

The solo 401k option is best as Will states. She can roll her 401k over into a self-directed or solo 401k and then invest that money into an entity of her choosing. Better than an IRA in my opinion because there are no tax ramifications if it stays in the same structure.

However, like Will said, she can't invest directly in a company where you are the sole owner or majority owner.

One option, however, is for her fund to buy the property and you could be the manager of the property and structure it that way. However, make sure you consult a qualified lawyer or accountant who will look out for you in this area so you don't violate any of the "self-dealing" rules.

Let us know what you chose, and good luck!