Buy and Hold JV with Solo 401(k) in 50/50 TIC

[Devin Redmond]

I'm teaming up with a good friend on a long-term buy and hold acquisition. We've identified a stabilized property and are now sorting out deal structure and determining how to finance and hold title. The working assumption is that we'll be 50/50 partners. I am running the acquisition process and have more real estate experience, while my partner is more focused on tax benefits like depreciation, future 1031 exchange options, estate planning, etc.

My current preference is to have my solo 401(k), which is already set up and funded, take my 50% of the deal. We'd hold title as a 50/50 TIC between my solo 401(k) and my friend personally and each side would contribute equal 50% shares of all equity. Obviously, my friend is not a disqualified person, so we're all good there.

It seems like one creative way to structure this might be to have my partner bring the debt financing since he'll be able to get far better 30-year fixed terms than my retirement entity. The JV docs would then obligate my retirement entity to cover my 50% of the debt payments (and opex and capex too), in the event that cash flow from the property ever falls short.

Have any of you structured something like this with a retirement account as one of the partners?

Assuming I'm doing the vast majority of the work to acquire and run the investment (but of course only as much as solo 401(k) rules allow), is this a fair arrangement between the parties? Obviously, my partner would be on the hook for the entire loan amount, but wouldn't that be the case anyways if we had applied jointly? So is he any worse off? Do you see any other obvious problems with this financing approach?

Finally, I'm assuming my partner can take depreciation and mortgage interest deductions at only 50% to align with his ownership, while the other 50% of each simply evaporates since my retirement entity is already tax-exempt. Does that sound right? Is there perhaps a better way to structure this from a tax perspective?

Thanks for any past experience or guidance you may have to offer here!

[Carl Fischer]

@Larry Richardson

No I wouldn’t do it. You can’t get a benefit from your plan and your plan can’t get a benefit from you. 
Think about it -if you built a house and did all the labor yourself and the 401k bought the land and all the materials and then sold that house deeded in your 401(k) the government wouldn’t make any money off of that deal.  In essence you made a huge contribution to your 401(k) in sweat equity. 
these tax advantage plans are great wealth builders and should not be anywhere near prohibited transactions. Don’t mess up a great thing.