Solo 401k | Solo 401k and Real Estate | 401k Real Estate | 401k Investments
With a self-directed Solo 401k, you have option to invest in many types of real estate such as rentals, condos, fixer uppers, apartments, commercial buildings, family and rental homes, and foreign property to name a few. Since you are named trustee of Solo 401k, you make real-estate purchases by writing checks from Solo 401k checking account and signing as trustee of solo 401k.
Even though it is not very well known, you can co-invest with your Solo 401k when purchasing real estate by using personal funds in conjunction with Solo 401k funds. This type of transaction is often known as Tenancy-In-Common-Ownership. Further, non-recourse loan can be incorporated when purchasing real estate with solo 401k or self-directed 401k. Under non-recourse loan or debt financing arrangement, your solo 401k in-effect borrows from a bank or private investor and uses borrowed proceeds to fund the solo 401k real-estate purchase. You can find full definition for non-recourse loan below as well as link to blog on topic.
Process for making solo 401k or 401k real estate purchase
- Nail down price range and if Solo 401k will use non-recourse financing and/ or participate in tenancy-in common transaction.
- Identify investment property
- If Solo 401k will incorporate non-recourse loan or debt financing, identify lender and loan terms.
- Make offer on property
- Have a third party (an attorney or Title Company) draw up real estate purchase documents.
- Notify third party that purchase is being made with Solo 401k funds and, therefore, your Solo 401k is to be listed as purchaser, not you.
- Purchase Contract
- Settlement Agreement
- Escrow Instructions
- Recorded Deed
- Copy of the loan documents (if your Solo 401k is utilizing non-recourse loan)
- As trustee of Solo 401k, you sign and forward the documents to the escrow agent, and write check from Solo 401k checking account for the purchase
Tenancy-in-Common Ownership—allows for purchase of real estate with personal funds and Solo 401k funds. Each will own a specific percentage of the property. As a result, the income and expenses associated with the investment will be proportionally shared based on the ownership percentage. Under tenancy-in-common, you can co invest your Solo 401k with family members such as your spouse or siblings. It is important to adequately reflect each investor’s percentage of ownership on the paperwork and that the expenses and income are proportionally shared by each party to the transaction.
Non-recourse loan— under this process, your Solo 401k can take a loan from a financial institution such as a bank or an investor for the purchase of real estate. If the loan isn’t paid back by your Solo 401k as promised, the lender may take the Solo 401k-owned property used to secure the debt, but may not take recourse against any other assets of your Solo 401k. Put simply, the Solo 401k-related loan can never affect any assets other than those used to secure the loan. Learn more about non-recourse loan or debt financing at following blog:
http://mysolo401k.net/Blog-for-MySolo401k.html?entry=quick-and-precise-explanation-of
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