One of the attractive things about a solo 401k is its ability to empower you with plenty of investment opportunities, of which real estate is one domain. You can use your account to buy real estate hassle-free. However, make sure to abide by the plan’s rules. As per guidance, you can invest in mobile homes, raw land, and commercial and apartment buildings. Make sure you select properties other than what you bought earlier or what your family owns. A Self-Directed Solo 401K can store all your realty investments in one place for easy handling and monitoring.
More on real estate investment rules for Solo 401K account holders
Be ready with your investment budget. First, you can visit a site like solo401k.com to open an account if you need one. With an account, you can use its benefits in the real estate segment. You can use a non-recourse loan or Tenancy-in-Common option. You will need a lender if you go for a non-recourse loan. You will quote a price for a property. You will also require an attorney to prepare the purchase documents. You must inform them you will transact through your Solo 401K account. Once the deal happens, you must store a few documents carefully, such as purchasing contract, settlement statement, initial copy of the deed, escrow instructions, and any loan document as applicable.
Non-recourse loan vs. Tenancy-in-Common ownership
A Solo 401K account can use a non-recourse loan from a bank or an investor to buy real estate. In the case of a default, the lending authority will repossess the real estate. But your Solo 401K assets will be safe. A lender can touch only the collateral asset rather than your plan. Under Tenancy-in-Common ownership, you can leverage your funds and Solo 401K account to buy a property. Every agreement can have an ownership split of 50/50, 60/40, and so on. It will help segregate income and expenses for owners as per the percentage. The good thing is that your close family member can also invest, but that split will be in place regarding income and expenses.
Solo 401K account of spouses
If you and your spouse have a Solo 401K, you may wonder whether you can buy a property together. As per the rules, it is possible. However, both individuals should send funds through checks or wire transfers. One participant can manage the expenses and income with ease. Also, the accounts should reconcile annually, especially during distributions. The reconciliation will follow the proper split between Husband and Wife per the terms, such as 50/50 or 60/40. Investment rules for domestic and overseas properties are the same. If there are any local laws, you must pay heed to them. In foreign investments, the attorney can be from the concerned country to ensure proper adherence to the regulations. Another critical thing is, purchase documents will carry the Solo 401K account name rather than personal credentials.
There are many rules and regulations to make your experience with Solo 401(k) safer and more comfortable. Follow them to make your real estate investments better.