You are considered "disqualified person" to your 401k and assigning this contract to your 401k would be considered "prohibited transaction":https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactions The proper steps would be:1) Establish and fund self-directed 401k2) Find and purchase investment

We're becoming quite a popular tourist destination and I would like to invest in a condo that my husband and I would manage ourselves as locals, with the hope of one day having a beach condo paid for that we can move to when the kid is grown and we're retired, and then rent out our 3br home as a LTR for extra income.

If I had $10000 for every realtor I encountered who listed a property as high as it could go (or over) and then went on to claim the price was typical or market value I could retire and retire quite nicely. 

Neighborhoods with stable rental demand, high yieldsand potential local economic growth.Currently I am researching ;Midtown?

My personal philosophy is that you cannot be too careful; I would rather a plaintiff be salivating over my scant business assets than my personal retirement account and residence. 

It is in our (wife and I) retirement account.

I'd love to flip the house and cash it all in for a huge bump in our retirement/real estate investment fund, but we like the house and the neighborhood.

I know once we retire we plan on selling all the houses doing a 1031 so that they are local.

You're better off finding/creating equity in a more stable market, like REO's or HUD foreclosures, as @Joe Villeneuve suggests.

After pretty paltry returns on our stocks the past few years, my husband and I had an a-ha moment that our rents from our multi-family have been more stable.