Self Directed IRA/401k — Video

Do you think investing in real estate through your self directed Ira/401k makes sense? Here are some thoughts to ponder.


Transcript:   Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about investing in real estate inside your self-directed IRA or 401(k) retirement plan. First of all, let’s start out with, generally speaking – and I want say over 90 percent of the time – I recommend against it. Here’s why. First of all, you can buy the property outside the plan for half to 60 percent of the down payment. It’s going to take you a minimum of 40 percent down inside your self-directed plan to do it. You can generally buy single-family investment properties for 20 percent, and duplexes to four-plexes for 25 percent down. Secondly, the financing on 401 and IRA self-directed plans, when you borrow, by definition of law must be non-recourse loans. What that means to the lender is they can’t look to you for satisfaction if you default. And when I say “you,” I mean your plan, ’cause you can’t have anything to do with it; it’s your plan’s property. Now, what that really means to the lender is the property is the sole security; that’s why the higher down payment. That’s why they’re not going to give you a thirty-year fixed rate. At most, they’re going to give you twenty five years, maybe twenty. Today’s rates are around four and a half, thirty year fixed, for a citizen buying on their own account. Inside your plan, it’s going to be somewhere between 5 and 7 percent, depending on the terms of the note, and we don’t have to get into those specifics, but that’s the range you can expect, and instead of being thirty, it will be twenty or twenty five, and maybe due in three or five or seven or whatever – risks that you’re not sure you want that plan to incur. Now, once you do that, and now you pay it off over years and years, it’s free and clear. Big whoop – now you’ve got a free and clear piece of property. What are you gonna do with it? Well, the good news is you don’t even have to think about 1031 tax-deferred exchanges. It’s tax-deferred by definition. But what are you really going to do? Are you going to sell it and buy more – what are you going to do? Here’s why I tell you not to do it. You can take that down payment – let’s say you’ve got $130,000, $150 in your plan. If you take that $150,000, and you get out of that plan, you’re going to net $75 or $80,000, because they really pick your pocket when you get out of those things. Bottom line is you can buy the same exact piece of property with half the money. You’re going to get a better interest rate. You’re going to pay it off faster. You’re going to have more options on your menu. And you can do whatever you want with it when it’s free and clear, and your choices increase unbelievably. The bottom line is take control; you’ll do more with half the money in your pocket than with twice the money in your self-directed plan. I’ve seen it over and over and over. I’ve had my own family do this. Now, we’ll talk about this further down the road with some other approaches, but that’ll be it for today. Thanks for joining me. I’ll see you next time. This is Jeff Brown, the BawldGuy.

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About BawldGuy

I'm second generation real estate, first licensed in fall of 1969. Having been mentored by several iconic brokers, I'm also CCIM trained, having completed all 200 hours back in 1980. Have successfully executed well over 200 tax deferred exchanges, many of which have been multi-state in nature. Strong points are analysis and the creation and real world application of Purposeful Plans employing several strategies synergistically. The idea is to arrive at retirement with the most after tax income possible, backed by the largest net worth.

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10 thoughts on “Self Directed IRA/401k — Video

  1. Doug Quance


    I know two people right now facing this dilemma. They each have around $150K in their IRAs and are interested in real estate. One is 50 and still working; the other is 65 and retired.

    What are your thoughts on flipping within an IRA with no loans involved?

    1. BawldGuy Post author

      Super question, Doug. Doing flips inside the plan makes a lotta sense. The reason, of course, is that it IS short term, and usually highly profitable. Thing is, doin’ it in a traditional IRA isn’t something I’d recommend, and here’s why.

      The 65 year old might very well get a government notice when he hits 70.5 years old, tellin’ him he WILL begin taking more income from his IRA, cuz he’s not taking enough. ‘Course, at 65 he might already be between a rock and a hard place for income. If that’s the case, takin’ the tax hit by converting to a Roth setup wouldn’t be practical. On the other hand, if he had enough in his traditional IRA now, such that the after tax amount would allow him to flip, he’d be in a much better position on a few levels.

      1. The income he’d take would be tax free.
      2. He wouldn’t face the possibility of being forced to cannibalize his principle at 70.5.
      3. He can either continue flipping, makin’ more and more profits, or make the decision to invest in something else for income. Or both. Either way the income is tax free in the Roth.

      The 50 year old guy has a better way to go, but that’ll get too involved for the comment section.

      I have much more to say on this, but will put it into a more coherent video. Again, great question, Doug.

      1. Doug Quance

        In this case, the 50 year old has funds in a Roth; the 65 year old has funds in a traditional IRA. The 65 year old already needs to start drawing down funds – and that’s cool, as she secretly fears that the government will one day come after IRAs, and she rather deplete hers by then. ^o^

        The 50 year old is more willing to participate in the “sweat equity” aspect of the flip, and she is looking to simply grow the retirement egg with a little safer asset. ;-)

      2. John Park

        Guys, a few comments I will make on some of these posts. Keep in mind one important issue: doing “flips” with a retirement plan is POTENTIALLY doable; however, one must be very careful and seek tax guidance so that their activities does not trigger UBIT (Unrelated Business Income Tax). Is there a solid, in black and white reference…no. But, you need to be cognizant of one thing…will the IRS come back and say that this is an investment of the plan OR are you attempting to run a business. More on this later…but good comments and questions.

      1. Doug Quance

        That article claims that most types of real estate investment would be exempt…

        The reasoning behind the tax (ensuring a non-profit entity would not gain advantage over a profit entity by pricing strategy) seems a little weak for a flipping model. One might argue that nowhere in the sale of a piece of real estate does profit truly come into play in respect to the sales price. IOW, it doesn’t matter if the developer is making a killing or losing his shirt – the property is only worth what someone else in an arm’s length transaction is willing to pay.

  2. BawldGuy Post author

    Hey Guys — Much of this discussion becomes moot when the Solo 401k is the entity. John Park is the guy to call on that, as he’s the ‘Self-Directed’ plan expert on my team.

  3. Seth Williams @

    Good information here Jeff. I wasn’t aware of some of the issues you raised until I saw this video. Most of the properties I buy with my self-directed IRA don’t involve financing (because I can buy them free and clear)… but I’ll definitely keep this in mind if/when I come across a scenario like this.


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