ForumsReal Estate InvestmentsQuestion re: "sweat equity" when using 401k for real estate

Forums Solo 401k Real Estate Investments Question re: "sweat equity" when using 401k for real estate

  • Question re: "sweat equity" when using 401k for real estate

    Roger B. replied 10 months, 3 weeks ago 2 Members · 3 Posts
  • 2 Replies
  • Roger B.

    Top SubjectSolo 401k Contributions,Real Estate Investments
    Top ForumsSolo 401k Contributions, Real Estate Investments

    Roger B.

    Roger B.

    Top SubjectSolo 401k Contributions,Real Estate Investments

    August 21, 2023 at 5:48 pm

    Hello,

    I’m thinking of using my 401k to invest in a new build to rent out either short or long-term.

    I already asked a related question, but I’m hoping to nail down exactly what type of “sweat equity” would be prohibited by the 401k trustee. As far as I understand, “you can’t perform sweat equity work on the property, but as the trustee of the solo 401k you could manage the property provided you don’t receive compensation.” I read elsewhere that “you should not perform *significant work* at the property yourself, even if you are a skilled contractor, *and reimburse yourself,* as that could be considered self-dealing, which is prohibited.”

    Am I allowed to perform work on the property as long as I do not receive compensation? Would I be allowed to finish interior detailing (e.g., crown molding) and landscaping as long as I do not pay myself for any of the work (and use 401k funds for supplies without mark-up)? This could potentially make the investment far more cost effective.

    Put simply: Is all hands-on work completely prohibited for the 401k trustee regardless of whether or not the trustee receives compensation, or is the IRS primarily intent on preventing “self-dealing”?

    Thank you!

    Roger B.
  • George Blower

    Top SubjectDaily Live Webinar,Solo 401k
    Top ForumsDaily Live Webinar, Solo 401k

    George Blower

    George Blower

    Top SubjectDaily Live Webinar,Solo 401k

    August 23, 2023 at 7:22 am

    All hands-on work is completely prohibited for the 401k trustee, regardless of whether or not the trustee receives compensation.

    As the trustee of the solo 401k, the solo 401k owner/participant is not allowed to perform any sweat equity work on the property owned by the solo 401k, even if the solo 401k owner/participant does not receive compensation for doing so. This includes finishing interior detailing and landscaping.

    Learn More

    1. https://www.mysolo401k.net/solo-401k/solo-401k-real-estate-investment-faqs/

    2. https://www.mysolo401k.net/solo-401k/solo-401k-real-estate-investment-procedure/

Related Blog Posts

Log in to reply.