hi, does anybody have experience with borrowing from other people 401k to buy real estate
The 401 k administrator isn’t going to allow a participant to invest in something like real estate as the plan limits the investment choices. However, those participants can set up a self-directed IRA with a 401k rollover and invest in your business as long as the owner isn’t a disqualified individual. It’s a bit of work for them to set up and maintain, but can give you access to funding without the difficulties people are facing using traditional lenders.
i was told that i can borrow other peps money from there 401k using a castodian.
do u have any experience with that avenue.
i’m :bangheada new investor and i want to borrow money to buy properties.
They need to set up a self-directed account like I mentioned in the previous post and there are many firms that offer self-directed IRAs.
I tell people to look at the costs of the custodian when deciding which one to use. Some charge an annual fee based on account value. That is a rip off IMO since their costs don’t scale with value. Imagine paying 1-3% a year on several hundred thousand dollars worth of property or investments. Worse is finding the cash to pay the fee when the value is based on non-liquid assets that can’t be easily sold to raise the cash to pay the fee. You can’t pay it because there are limits to how much an individual can contribute to an IRA each year. Many charge a quarterly asset fee for each asset owned. All of them will charge you every time they have to do something. They will nickle and dime you because fees are the only source of income.
I prefer ones that charge a fixed annual fee with no asset fees. I suggest picking a custodian with the lowest fees and then create an LLC to be owned by the IRA. Invest everything in the LLC and manage the investments from the LLC, but use a sibling or other non-disqualified individual as the manager. Don’t do it yourself to avoid a prohibited transaction. There will be no interaction with the custodian. You can make all the decisions when you want rather than wait for the custodian to approve the deal and there is only one asset fee regardless of the number of investments actually made.
One thing to remember is that IRAs must report value to the IRS each year. That means self-directed IRAs must hire an independent appraiser to evaluate the investments. If it’s property, that means springing for an appraisal every year. It can also be difficult and expensive to find someone to evaluate a private placement or promissory note, especially where there is no market.
thanks BLL that was really informative. to following up on ur post. what if i want people to lend me money through their IRA. do i create a product in my L.L.C. so they can get simple interest of their money.
There isn’t a product. They can loan to your entity or they can lend to you directly.
Self Directed IRA
Here in Florida Entrust is a company that many investors in my local REI club use.