Seller financing when buying with a solo 401k

[Christa S Rickard]

I have a solo 401k that I set up last year. I'm currently looking to buy my first small multifamily this year. I focused on the Central Florida area, basically Western Tampa MSA over to the Space Coast. I found a property that looks interesting and it also says seller financing is available. I know all investors love to find seller financing as an option, but can I use seller financing if I'm using a solo 401k to purchase the property? I understand that solo 401K can only use a non-recourse loan and I have a list of several banks that specialize in 401k real estate investing. If I can structure the purchase agreement such that the seller financing is essentially non-recourse, meaning it can only take the property if something happens, will that satisfy the solo 401k loan requirements? And if so, how likely is it that the seller would consider that?

[Daniel Dietz]

@Christa S Rickard we have two loans from a Private Lender that are non-recourse "HELOCs" on small SFHs we owned free and clear. He loans up to about 75% of LTV if needed, and we then use this as down payments on larger properties (4 plexs) and are able to pay it back by using ALL cash flow from both properties.

This is essentially what you would be asking a seller to do. I did read somewhere when we started all this that the seller "holding a mortgage/note" as opposed to doing a "land contract" would work better for some reason with the non-recourse part of things. I dont remember the details, but I do know that in a non retirement account it is usually said that is better too, so we just stuck with it.

We did have the lawyers that set up our LLC, which is made up of 3 different SOLO401Ks, review the mortgage/note template to make sure all was good.

We are working on getting a deal like this closed right now. On the good side is that we are only looking at about 20% down, where almost all commercial non-recourse lenders are looking for 40% or so. Our seller is just looking to getting enough to cover his depreciation recapture and then stretch out the payment and interest of 5% over 15+ years.

We are still negotiating, but hoping for a 30 year amortization and a balloon at 15 years, which by then if we have not paid it off early (the plan) we would have enough equity to refinance at that point.