BRRRR'ing in your Solo-401k

[Justin Sumulong]

I am considering using the funds in my solo-401k to do a BRRRR.

First question, I guess, is what are thoughts on this? Good or bad idea?

I've ran through the process and I think the most important thing is not commingling funds throughout the process but the only issue I really have a problem with is when the time comes to refinance the loan, it will be difficult for me to get a loan out on the property for the trust/entity my solo-401k is run by. I'm guessing if I can find a bank that will, they will only do an LTV of <60%. So the question(s) is: Does anyone have banks they can recommend for refinancing out of a BRRRR when using an entity? Are there alternative methods to handle this step or ways to get around such a low LTV on a refinance? Any other suggestions/ideas are also much appreciated.

Thanks,

Justin

[George Blower]

@Justin Sumulong

Here are the general considerations regarding 401k loans.

401k Participant Loans

• If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
• Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
• Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).