Self directed solo i401K advice needed please

[Patti Royster]

Hello there.  My husband got laid off about 3 years ago and we did a Solo i401K with our 401K money.  We have been told that we can use it to buy properties but we can't get loans with it, etc.  The market around us now is up and I was thinking of waiting until it cools off some and then pick up some rental properties to hold and manage ourselves.  Wanting to get my money working for me again.  I would love your thoughts and ideas.  We aren't new to the landlord/investing/real estate game.  Thanks for your help!  I would love to hear about any experiences anyone has had with theirs.

[Brian Eastman]

@Patti Royster

Many of the posts on this thread seem to have missed your actual question.  This is not taking a taxable distribution from the 401k or borrowing personally from the 401k as some posters have interpreted.

Yes, a Solo 401k can directly purchase income property.  All expenses for the purchase and maintenance must come from plan funds and all income is returned to the plan.  It is very much like having a 401k invested in the stock market, but with real estate as the asset class.

A 401k may use debt-financing such as a mortgage, as @Dmitriy Fomichenko has indicated.  The loan must be non-recourse, since you may not pledge your assets as security for your 401(k) plan's debt.  Using leverage in a Solo 401k can be a very powerful strategy, so long as you do not over-leverage.

Who established your Solo 401(k)?  They should be able to provide reasonable guidance as to how you can use the plan.  Your CPA is also someone that you will very much want to have in the know as to your intentions so they can steer you clear if IRS issues.  Easy to do, but certainly some framework issues to be aware of.