ForumsSolo 401kWhat satisfies ” Non-Recouse” Requirements when 401k buys RE on a LC

Forums Solo 401k What satisfies ” Non-Recouse” Requirements when 401k buys RE on a LC

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  • What satisfies ” Non-Recouse” Requirements when 401k buys RE on a LC

    3 Replies
  • Travis COTA

    Top SubjectSolo 401k
    Top ForumsSolo 401k

    Travis COTA

    Travis COTA

    Top SubjectSolo 401k

    September 9, 2021 at 11:37 am

    If I am correct the Solo 401k is the Only Qualified plan that allows you to benefit from debt leveraging provided that you cannot personally guaranty the debt.

    I am funding Self Directed Solo 401ks with intent to invest in Real Estate .

    I have heard Good things about Non Recourse Lenders , but after looking into them further , for various reasons they are not always going to be practical.

    Restrictions are non only that they require “large downpayments” , as they cannot be personally guaranteed, but also have lenders only offering Loans in Select Geographies, Certain Asset Classes , No Vacant Land, No Homes with too Much Land , No Homes of a certain age , high rates etc.

    I guess under ideal circumstances this could work, however trying to me all of those base requirements and “equity” in the investment limits the opportunity , So ..

    Seem like Someone out there may better understand what the protocol for Buying Real Estate F.B.O. a Solo401k Plan on a Non-Recourse Land Contract without making personal Gaurantees might look like.

    If anyone out there can share a compliant Land Contract Template and or Language they have used it would be genuinely appreciated .

    Travis Cota

    ReMax S/E Mich

  • Mark Nolan

    Top SubjectSolo 401k,Rollover Funds into Solo 401k
    Top ForumsSolo 401k, Rollover Funds into Solo 401k

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Rollover Funds into Solo 401k

    September 10, 2021 at 5:51 am

    Yes, a self-directed solo 401k may obtain a non-recourse loan. The loan cannot be guaranteed by the solo 401k owner. Non-recourse means that in the even of loan default the lender will not have recourse against the solo 401k participant / trustee or any other asset of the solo 401k plan. In the event of default / foreclosure, the lender can only recover the real property.

    In addition to banks, non-recourse lenders can also be hard money lenders or other investors. Hard money lenders and investors may have more favorable terms and may be welling to based the loan on more property types. For a sample list of lenders VISIT HERE.

  • Travis COTA

    Top SubjectSolo 401k
    Top ForumsSolo 401k

    Travis COTA

    Travis COTA

    Top SubjectSolo 401k

    September 10, 2021 at 8:46 am

    So , I went through that same lender list before posting .

    My Question was not about Banks or ” Hard Money Lenders “

    Just Land Contracts

    No one has told me that the Same Language These Lenders are using couldnt be in a Land Contract and used to obtain Seller Financing for a Solo 401k.

    Just looking for a Member , Real Estate or Tax Attorney that has used this .

  • Valerie Cran

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

    Valerie Cran

    Valerie Cran

    Top SubjectSolo 401k Contributions,Solo 401k Bank Account

    September 12, 2021 at 6:52 am

    Travis, Apparently Land Contracts are governed by individual state law. There is an interesting guide by muskegontwp.org than you can Google for Michigan info. I was going to tell you that adding the language to the Land Contract stating that the property is the sole collateral for the loan would make it non-recourse, but that guide says that in the event of default the seller may sue for breach of contract regardless of whether it is says that in the contract or not. I’m not sure whether it’s legal to put your account into that situation, but even if it is, I certainly wouldn’t want to do it.

    My question to you is why would you use a LC at all? Why wouldn’t you just purchase the property with Owner Financing. Then you could add the “sole collateral” language and be in compliance. What I would personally like to know is what, if any, the lowest threshold is for the investment itself. Assuming you could find a seller willing to do it, do you think it’s possible to invest $5k as a down payment on a $150k property? Ultimately, the goal is to get away from the lending restrictions and the high down payment/interest rates and that might do it. Let us know what you find out!

    Valerie Cran

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