co-investing?

[Earl]

Can a Plan Participant purchase real estate with personal and 401k money? Property would have co-owners, the individual and the plan. (I understand that the interest of either could not be sold to the other.) I thought I remembered reading about doing this and if all income and expenses are split proportionately it was ok but, now that I am being asked, I can't find anything specific on it.

And, as a related question caused by client's spending time at an SBA seminar, can that property be leased to the Plan Sponsor? Again I thought I read about leasing property to the plan sponsor but can't find anything. SBA apparently said he could do this. (This one I am sending him to an ERISA attorney to work through.)

Any thoughts would be appreciated.

Thank you

[ESOP Guy]

The lease sounds like a clear Prohibited Transaction unless these is a DOL exception I am forgetting about.

The purchase and co-ownership sounds like a PT also to me.

PTs are not my area of expertise I will admit so another person might chime in and add value.

However, it it clear to me that in both cases those are the rules you want to research.

As an aside just do a search on the words "real estate" on this board and you will get threads describing all the reasons why real estate in a qualified plan is a bad idea. I have seen too many times where RE in a plan ends badly.

[MoJo]

"I have seen too many times where RE in a plan ends badly."

My two cents worth: I have RARELY seen any time where RE in a plan ends well....

Appraisals, RE tax, UBIT, liability insurance (or just liability...), management (someone has to collect rents, pay bills) and the like complicate ownership. Add to that there may be built in tax advantages to owning real estate that get lost due to holding the real estate in a plan (cap gains can get turned into ordinary income, depreciation is lost as a current deduction in a plan, etc...).

[Earl]

Thanks for your thoughts but related to the issue I found:

A plan may not participate in an investment with one made by a related party for the primary purpose of achieving a minimum threshold investment. However, if the plan can independently justify the prudency of the investment, it may be permitted.

This is what I am trying to substantiate.

Thanks again.