Now
that you have made decision to open solo401k, you next need to determine if you will invest solo 401k in real
estate and if debt financing will be incorporated. This is why solo 401k is
sometimes referred as debt financing solo 401k or non-recourse solo 401k. We have provided the following information
regarding the use of debt financing or non-recourse loan option after you open solo 40k.
- Debt-financing solo 401k means that your Solo 401k can take a loan/ borrow from a bank or investor for use in real estate purchase.
- Use of debt financing results in more available cash for investing solo 401k in real estate.
- The term non-recourse keeps the lender from coming after your personal assets or any other assets of your solo 401k in the event solo 401k defaults in making non-recourse loan payments.
- If loan default or foreclosure takes place, the lender may only go after the real-estate property that was purchased with the non-recourse loan proceeds.
- Because the property is the only asset attached to the non-recourse loan, only these funds can be used for collateral.
- Debt financing for 401k became popular in the early 200s.
- Non-recourse loans offered not only available through banks but also through private investors.
- Non-recourse loan term is typically for 15 to 25 years if offered by bank, and same or less if offered by private investor.
- Debt financing frees up money in Solo 401k that can therefore be invested in additional investments.
- Non-recourse loan differs from conventional loan from a bank in that the following does not apply since loan is to Solo 401k instead of you:
- W-2’s are not reviewed
- Tax returns are not reviewed
- Only solo 401k assets instead of personal assets are reviewed
- Non-recourse loan is to Solo 401k, therefore loan will not show-up on your credit report and your social security number is not used. As a result, it’s important to list the Solo 401k EIN (employer identification number) on solo 401k non-recourse loan documents.
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