Information Regarding Investing a Solo 401k Plan in Real Estate:
- Non–recourse financing: Find lenders that specialize in non–recourse loans to solo 401k plans: CLICK HERE
- Real Estate Investment Procedure: Click Here
- Real Estate FAQs: Click Here
- Invest in Real Estate: Click Here
- Prohibited Transactions Self-Directed 401k Click Here
Single Member LLC for Solo 401k Investing: While not required for investing in alternative investments, a solo 401k plan may invest in real estate through a single-member LLC. Click here to learn more.
Multiple LLCs: Click Here Webinar
Flipping Real Estate Inside a Solo 401k Plan: Flipping homes is generally considered a trade or business activity. When a tax-exempt entity (e.g., Solo 401k or IRA LLC) engages in a trade or business on a regular or repeated basis, the income generated may be subject to Unrelated Business Income Tax (UBIT). While the industry consensus is that 1-2 flips per year would not expose the income to UBIT, a higher volume of flips increases that risk.
Airbnb Solo 401k Rental Income – UBIT Considerations:
With respect to a Solo 401k investment in real estate, UBIT could apply if the income generated is considered business rather than investment income.
For example, income derived from fixing and flipping a higher volume of properties may be considered business income that is subject to UBIT whereas rental income is considered passive investment income and thus not subject to UBIT.
A type of rental real estate income that may be considered business income, however, is the short-term rental income as described in the post shared below. Practically speaking, whether income is considered short-term will depend on the facts and circumstances (e.g. the average rental period, etc.). Click Here
Indirectly Investing in Real-Estate Through Hard Money Loans / Promissory Notes:
Another method of giving your solo 401k exposure to real estate is by investing in promissory notes secured by real estate. As the trustee of the solo 401k plan, you would determine the loan terms, and create the promissory note which would list the loan/principal amount, interest rate, when the note is due (maturity date), and guidelines for dealing with possible loan default. Please see the following links below for helpful information regarding Promissory Note Investing:
- https://www.mysolo401k.net/solo-401k/secured-notes/
- https://www.mysolo401k.net/investingbuying-promissory-notestrust-deeds-solo-401k/
- https://www.mysolo401k.net/wp-content/uploads/2014/09/Solo_401k_UNSECURED_NOTE_Purchase_Form_-_Copy__2_.pdf
- https://www.mysolo401k.net/wp-content/uploads/2014/09/Solo_401k_SECURED_NOTE_Purchase_Form_-_Copy__2__-_Copy.pdf
Some of the criteria entails charging the borrower an interest rate that will benefit the solo 401k plan. A common approach is to charge an interest rate based on the borrower’s credit score including a rate that a bank, for example, would charge for a similar loan.
