How to Use Your Solo 401k to Buy Real Estate

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Successful real estate ventures rely on external funds to boost investment power and generate wealth over time. Aspiring real estate investors must understand this lesson early on to navigate a stable investment landscape and mitigate risks.

Many investors purchase real estate through retirement accounts, where it serves as an alternative investment option. Using a Self-Directed Individual Retirement Account (SDIRA) for real estate investment is a popular tax strategy. Profits from these investments remain untaxed until retirement, maximizing benefits.

For self-employed individuals or those running solo businesses, the Solo 401(k) plan offers a suitable avenue for real estate purchases. Unlike traditional company-sponsored 401(k) plans, Solo 401(k) retirement plans provide exclusive benefits of real estate investment. These plans allow diversification of retirement savings into various investment options, including real estate, precious metals, stocks, bonds, mutual funds, tax liens, and tax deeds.

A Solo 401(k) permits the acquisition of different types of real estate properties, such as apartments, single-family homes, commercial properties, condos, and mobile homes. However, note that using personal funds for real estate-related expenses incurs tax implications. All costs must be sourced from the Solo 401(k) bank or brokerage account. Depreciation from real estate owned by a retirement account is not permitted.

To utilize your Solo 401(k) for real estate investments, ensure that your plan offers alternative investment options. Qualifying for a Solo 401(k) requires being self-employed, generating income through self-employment activities, owning a small business without employees other than yourself or a spouse, or working as an independent contractor with part-time employees.

Investing in real estate through a Solo 401(k) offers benefits such as tax deferment, access to non-recourse business loans, and leveraging opportunities. Tax deferment allows tax-free growth, while non-recourse business loans provide additional financing options. Leveraging borrowed capital can amplify investment returns, and Solo 401(k) plans are exempt from the Unrelated Business Taxable Income (UBTI) tax, making them ideal for real estate investments. Moreover, the Solo 401(k) offers asset protection against bankruptcy and creditor claims.

There are various ways to purchase property through a Solo 401(k), including all-cash purchases, non-recourse loans, Limited Liability Companies (LLCs), and Tenants in Common purchases. Each method has its advantages, allowing you to choose the approach that aligns with your investment strategy.

Unlock Real Estate Investment Potential with Solo 401(k)

The Solo 401(k) is an excellent way to finance real estate investments, especially for individual entrepreneurs or small companies. It provides tax deferment and leverage, allowing you to climb the property ladder and generate a steady income from real estate. 

At Foothold, we believe in making property ownership accessible to everyone, regardless of their financial background. With our platform, you can start investing in vacation rentals properties with as little as $200, and grow your portfolio while earning consistent rental income. Check out our available properties here.

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