All Forum Posts by: Jed Wood

@Trent Parker I'm considering the same. Did you end up using them?

Dmitriy-

Based on your answer, it probably sounded like I just repeated one of my previous questions. Sorry for being confusing. :)

In this case, I'm talking about the other way around: can my Solo 401k receive an unsecured loan. For example, I have a colleague that wants to lend money to my Solo 401k for real estate investing, but doesn't care about the specifics of any given deal. Just "here's some money. I'd like it back in 5 years with X% return." Very risky on the part of my colleague to be sure, but is it legal? 

@Stephen Hall not a whole lot new to add, but it's not often that somebody living here in American Fork asks a question, so I'm like "oh hey I live here I should chime in!" :)

I had a rental townhouse in Pleasant Grove that I planned on holding indefinitely, but recently sold it after just 18 months because purchase prices keep going up so quickly here, and rents aren't really keeping pace. I decided to shift to a cash flow strategy that doesn't rely on appreciation, and that has taken my investments to Ogden, specifically older small multi-family properties. 

You wrote that your goal is to continue acquiring additional rentals as quickly as you're able. You probably already know this, but keep in mind that many lenders are 1.) not going to count the income from that rental in your DTI ratio unless/until you've got at least 12-24 months track record as being a landlord, and 2.) only count ~75% of rental income in your DTI. So depending on your DTI outside of this rental, you might not be able to finance as many deals as quickly as you'd like, even if you have the necessary down payments. Rising interest rates are not going to help. :/

As others have mentioned, it's a little difficult to imagine the growth and appreciation around here taking a drastic turn for the worse, but... ¯\_(ツ)_/¯ so if you have the flexibility to hold this through some hypothetical downturn, it seems unlikely this will be a big loser for you. It just seems a little less certain how big of a winner. We could have Seattle-ish prices within a few years and you'll make out like a bandit.

The challenge with a quick flip is the costs associated with buying and selling. Even if you save some $ by using Homie or Flat Rate Homes (I've had good success with both), you'll likely end up paying ~3% buyer's agent fee.

Oh, and read the fine print of the HOA before you count on AirBnB. Doesn't mean you'll get busted, but in almost every one I've looked at in Utah Valley, the explicitly prohibit short-term rentals.

As long as I steer clear of disqualified persons, are there any legal restrictions on my Solo 401k taking on a private loan that's not tied to a single specific real estate purchase?

Great, thanks guys.

@Dmitriy Fomichenko here's another non-recourse loan question. In one of your articles, it states:

"Ineligible Properties: The following properties cannot be acquired with non-recourse financing: Residential with large acreage, raw land, farms, rural properties, manufactured or log homes, non-warrantable condos, Condo Hotels, Co-ops, Time Shares, hotels, senior or assisted living facilities, non-franchise restaurants, entertainment properties, ministorage, and commercial property."

Are those ineligible by law? Or is it just that even non-recourse lenders generally won't lend on those property types? Let's say I find a property that would make a good rental, but it happens to be a manufactured home. If I know a private investor that's willing to lend my Solo401k part of the money to purchase, can I do it?

Thanks for the replies George and Justin!

My provider started this thread, so I’m guessing he’ll chime in. :) Thought I’d ask it here in case it was useful to others. 

I understand that leveraged property purchased with Solo 401k funds can only use a non-recourse loan. And I understand that if a property owned by a Solo 401k is used as a short-term rental (e.g. AirBnB), it can trigger UBIT. My question is: what layers/indirection is required to steer clear of those? A few hypothetical examples:

#1- Let's say my Solo 401k has a profit-sharing agreement with an LLC; the Solo 401k provided some startup funds, and it receives returns that vary based on the profits of the LLC. Some of the LLC's revenues come from AirBnB rental properties. And one of the properties was purchased with a conventional loan that was guaranteed by one of the LLC partners. Would my Solo 401k be in trouble for investing in real estate with a recourse loan? And would it owe UBIT on the profit sharing it receives?

#2- Let's say my Solo 401k provides a loan to person or small business with a fixed interest rate, and doesn't specify what that loan can be used for. Then the person buys a property using conventional financing, which they rent via AirBnB. Perhaps it's not even clear whether the Solo 401k loan funds were directly used for the down payment of that property, but maybe they were. Would my Solo 401k be in trouble for investing in real estate with a recourse loan? And would it owe UBIT on the interest that is paid back to it? 

To be clear, I'm not looking for some sneaky way to not "get caught." I'd like to invest my Solo 401k funds with one or two partners, have the option of investing in AirBnB rentals, allow the partners to get better financing than non-recourse loans provide, and minimize taxes and penalties. So I'm looking for the simplest arrangement that achieves those goals while keeping everything legal.