Furthermore, the Solo 401k rules permit you to combine personal funds–this type arrangement is often referred to as Tenancy-in-common Ownership–with your Solo 401k in making the purchase. The rules further permit your Solo 401k to borrow from a bank or private lender to complete the purchase. The process of your Self-Directed Solo 401kborrowing from an outside party is referred to as a non-recourse loan. See definition below.
The general steps required to make a real estate investment with Solo 401k are:
Determine price range and whether or not your Solo 401k will need to engage in non-recourse financing or participate in a
Choose the investment property
If your Solo 401k will borrow money, find a lender and settle on the terms
Make an offer to the Seller
Have a third party (an attorney or Title Company) draw up the real estate purchase documents
Confirm that the third party understands that
You as trustee of your Solo 401k will
copy of the Purchase Contract
copy of the Settlement Agreement
copy of the Escrow Instructions
copy of the preliminary (un-recorded) Deed
copy of the loan documents (if your Solo 401k is getting a non-recourse loan)
You as trustee of
Lastly, the above procedure assumes that you went through a Solo 401k Provider toOpen Solo 401k that allows you to trustee your own Solo 401k investments instead of going through a custodian that has their own procedures and also safe keeps the real estate documents and therefore charges a holding fee.
Tenancy-in-Common Ownership: allows you to buy 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. This type of arrangement also permits you to invest your Solo 401k with family members such as your spouse or siblings. Again, the key is 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: affords your Solo 401k the option to take a loan from a financial institution or an investor for purchasing real estate. If the loan is not 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.Simply put, your Solo 401k-related loan can never affect any assets other than those used to secure the loan.