Flip vs Hold/Rent with your Solo 401(k)?

[Drew Wiard]

Hey everyone!,

I recently set up my Solo 401(k), and will soon be up and running!  I am curious to know - what is your preference for your Real Estate dealings within your Solo 401(k)?  Flips or Buy and Hold?

[Tara Piantanida-Kelly]

Hi Drew,

I am also in the process of setting up my Solo 401(k)!  For my first purchase, I'm buying a non-performing note with a partner.  

I am certainly not a tax expert, but Tom Wheelwright (the CPA and Rich Dad/Robert Kiyosaki advisor) advises to NEVER put one tax-advantaged strategy (such as rental property) into ANOTHER tax-advantaged strategy (an IRA or 401(k)).

There are a couple of reasons why...  The beauty of rental properties include: 

Tax deductions - but since IRAs and 401(k)s don't file or pay income tax, you lose the tax benefit if the property is held in one, and

Leverage - YOU can put a % down and get a mortgage for the remainder, but your 401(k) or IRA will have a MUCH harder time doing this!

So if you are trying to decide between a flip or a buy/hold in your 401(k), I would suggest the flip.  BUT, there are other things you could do with your 401(k) too: hard money lending, buying vacant land for appreciation, buying notes...  

If you REALLY want to go the buy/hold route, you could make yourself a loan from your 401(k) (being careful about the rules and limits), buy the property in your personal name, and make loan payments back to your 401(k).  That way, you still get the tax advantages of the rental property AND you can use leverage (you don't have to pay 100% cash for the property).  

Just my view from this padded cell...

Cheers~

Tara Piantanida-Kelly