Forums Solo 401k Real Estate Investments Note Investing

  • Note Investing

    Mark Nolan replied 5 months, 1 week ago 2 Members · 4 Posts
  • 3 Replies
  • Top SubjectReal Estate Investments
    Top ForumsReal Estate Investments

    Michael M
    Top SubjectReal Estate Investments

    January 21, 2024 at 7:25 pm

    Hi. I have been investing in private notes that are collateralized with real estate. A couple of questions I had.

    1) I commonly create notes with multiple lenders involved. When doing a note, I end up charging points/origination fees on the loan. Being that I end up sourcing the deal and doing all the leg work, I am the only one who retains these fees typically. In this scenario, is it OK for me to retain all these fees in my self directed solo 401k, or do I need to split it up as a function of everyone’s beneficiary position on the note?


    2) Follow up to the previous question. Lets say I personally fund 50% of a note, and my Retirement Trust funds the other 50%. If I charge origination/points on the note, is it ok to absorb that completely by the Trust?


    3) Often times when I have multiple lenders involved, I have an agreement where I make a higher yield on my money compared to others involved. So for example. Lets say I invest 50% and a partner invests 50%. We may have a note that states interest is at 14%. However, myself and my partner have an agreement signed that says I make 16% and he makes 12%. This spread is a result of me sourcing the deal, and doing the leg work with title, vetting the financials, etc. Is this acceptable to do so with a retirement trust? The only reason I ask this, is because it seems like if this was allowed, it would be too easy to abuse it. (i.e. Invest 50/50 with your trust and yourself being the lenders. Then you could have yourself make 4% and your trust make 20% for example). For the reasons of it being easily abused makes me question whether this would be allowed, even if it was reasonably done.



    Michael M
  • Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    January 27, 2024 at 1:03 pm

    1. The key is that you are not personally receiving a benefit as a result of your solo 401k investing in notes. The solo 401k itself must benefit from the investment. Whether other investors, provided they are not disqualified parties (e.g., the solo 401k owner, his spouse, his children, his spouse, etc.) should also benefit from points and original fees is for determination by the investors.

    2. It would be prohibited for you to personally benefit contingent/as a result of the investment made by the solo 401k.

    3. See above.

    Lastly, due to the solo 401k prohibited transaction rules and to avoid self-dealing, it is generally cleaner to solely invest the solo 401k in the applicable note, not in pooled notes where the solo 401k owner or his family members will also invest.

    • Top SubjectReal Estate Investments
      Top ForumsReal Estate Investments

      Michael M
      Top SubjectReal Estate Investments

      January 28, 2024 at 3:09 pm

      Mark. Couple of follow up questions.

      In general, to be clear, when this is done, no funds are co-mingled. Everyone has a defined beneficiary percentage on the note/deed of trust that is in alignment of the amount they contribute. Any interest/payout owed are paid to each funder directly etc. Each investor wires funds separately to title as well.

      1. Response: To be clear, there is no issues having “disqualified” parties being other investors in funding the note correct. I think you were just saying that in the event that there was disqualified parties, I would need to split the origination/points out amongst them proportionally with how much each party has funded in the note. Do I understand this correctly?


      2. Response: To be clear, I think your saying that I would just need to distribute points/origination in a manner proportionally is this correct? So If I personally contribute 50% of the note and the trust contributes 50%, I just need to make sure any points and fees collected are distributed 50/50 as well directly to my trust and my personal account.

      Michael M
      • Mark Nolan

        Top SubjectSolo 401k,Solo 401k Contributions
        Top ForumsSolo 401k, Solo 401k Contributions

        Mark Nolan

        Mark Nolan

        Top SubjectSolo 401k,Solo 401k Contributions

        January 29, 2024 at 3:30 pm

        I presume just one note is issued and is secured by the one property. The solo 401k will need to be separately listed as one of the beneficiaries. Also, as previously stated, it is best for the solo 401k participant and his family members such as his parents, spouse and parents to not also invest in the note.

        The IRS may deem it a prohibited investment if note terms were not made at arm’s length and are determined to benefit the retirement account owner or his family members.

        For this reason, it is best to not pool your retirement account in the same note investment.

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