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Purchasing/Investing in Real Estate with a Self-Directed Solo 401(k)

Updated: Mar 30, 2022

With a self-directed solo 401(k), also known as an individual 401(k), you as trustee, may purchase many types of real estate investments to be owned by/held in your solo 401(k). For example, your solo 401(k) may hold/purchase land, residential or commercial properties, or tax liens, to name a few.

Vacation rental held in a self-directed solo 401(k)

If you don’t have enough in the account to purchase the property in full plus pay the on-going expenses related to the property, the solo 401(k) rules allow you to combine personal funds through an arrangement called a Tenancy-in-Common Ownership (TIC) with your solo 401k to make the purchase. The rules further permit your solo 401(k) to borrow from a bank or private lender to help complete the purchase. The loan cannot be a traditional mortgage loan, etc., however, since they are based on your personal collateral. Instead, your self-directed solo 401(k) can only take out a non-recourse loan. See definitions for each below.

These are the basic steps required to make a real estate investment using a solo 401(k):

  1. Determine price range and whether or not your solo 401(k) will need to obtain non-recourse financing or participate in a TIC transaction.

  2. Choose the property that you want to invest in.

  3. If your solo 401(k) will borrow money, find a lender and settle on the terms of a non-recourse loan.

  4. Make an offer to the seller and wait for acceptance.

  5. Have a third party (an attorney or title company) draw up the real estate purchase documents and TIC documents, if needed.

  6. Ensure that your solo 401(k) is listed as the buyer and confirm that the seller understands that you are making the purchase through your solo k.

  7. Be sure that all expenses and income/gain go out of and into the solo k account and that you do not do any work on the property yourself.

You as trustee of your solo 401(k) must retain the following forms and documents (copies) in connection with the purchase:

  • Purchase Contract

  • Settlement Statement/ALTA

  • Escrow Instructions

  • The preliminary (un-recorded) Deed

  • Non-recourse loan and/or TIC documents as applicable