Quick Yet Precise Explanation of Solo 401k Non-Recourse Loan (debt financing or leverage) Process

Once you make decision to open solo 401k for investing in real estate, you need to familiarize yourself with the non-recourse loan process (also known as leverage, or debt financing), which can be quite challenging to understand if you are new to the self directed 401k real estate world. Of course, you don’t have to wait to open solo 401k before understanding the solo 401k non-recourse basics.

  • Non-recourse loan means that your Solo 401k can borrow (take a loan) from a bank, friend or investor for investing  in real estate.
  • Through the use of leverage or debt financing, the solo 401k greatly increases its available cash amount for investing.
  • Non-recourse means that the lender cannot go after the Solo 401k trustee/participant or the balances of the Solo 401k (also referred to as self-directed 401k, individual 401k, self-directed solo 401k or Solo k).
  • If loan default or foreclosure occurs, the lender can only go after the property for repayment, not any other asset of your solo 401k including cash or the Solo 401k trustee/participant’s personal assets.

  • Since the property is the only asset attached to the non-recourse loan, these are the only funds that the solo 401k can use as collateral for loan.
  • Non-recourse loans in connection with 401ks are not new but only started becoming popular in the early 2000’s.
  • Non-recourse loans can be obtained through certain banks (e.g., North American Savings Bank) as well as hard-money lenders (e.g., whether friend, investor, or company specializing in non-recourse loans).
  • While non-recourse loans can be structured for any term period, banks that specialize in them generally set 15 to 25 year loan payoff periods.
  • Non-recourse loan frees up cash in Solo 401k for use in other investments including additional real estate purchases because only some of the solo 401k funds are used towards the real estate purchase that is utilizing the non-recourse loan.
  • Since a non-recourse loan is quite different from a conventional loan, the qualification requirements are different in that the non recourse lender (assuming you are going through a bank) will NOT look at the following since the loan is to your Solo 401k, not you:
  1. Will not check to see if you are employed
  2. Will not check your income
  3. Will not look at your W-2’s
  4. Will not look at your tax returns
  5. Will only look at solo 401k assets not your personal assets
  • Since non-recourse loan is to Solo 401k, the loan does not appear on your credit report since your social security number is not used. Therefore, it is important to use the Solo 401k EIN (employer identification number) on all loan documents in connection with non-recourse loan.


About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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