Self 401k purchase refinance

[Alex Turchetta]

I know that it is possible to purchase real estate using a self directed 401k using a variety of strategies, either purchasing in full or partnering with "yourself" outside of the 401k to purchase the property. However, i was wondering if it is at all possible, once the property is purchased by the 401k, that the property then be refinanced through a bank loan, essentially "paying the 401k back" for the original purchase. I'd like to do some rehab to improve the value and I understand any rehab work on the property cant be done myself. Basically a BRRR strategy with a loan from my 401k... But is this an option??? Ive spoke to the retirement department at schwab and at an alternative investment company and neither seemed to have the answer. Any insight would be appreciated. Thanks!

[Brian Eastman]

@Alex Turchetta

Firstly, we would strongly recommend against partnering between yourself and your retirement plan.  There is lots of marketing info on the internet stating this is possible, but most any tax attorney with a conscience will tell you this is "possible but too risky".

If the Solo 401(k) purchases property, then it is possible for the Solo 401(k) to obtain a non-recourse mortgage.  You may not provide a personal guarantee on a loan for the 401k and the property is the only security to the lender.  Most lenders that do such loans will be very conservative on after repair valuation until the property has been in service for a considerable amount of time.

Standard investment firms like Schwab have no ability to guide you in these matters. They sell stocks. You should consult with a professional in the self-directed IRA space, and then corroborate what you hear with your licensed tax or legal counsel.