BiggerPockets

I am looking into purchasing an REO, rehabbing it, and holding on to it as rental for a year or two and then selling. I plan on using private money for the deal, in this case a good friend of mine's self directed roth ira.
My question is how I go about structuring the loan? Ideally, I would like to borrow the purchase, rehab, and closing costs. Rent the property out and then cash out my investor in two years through a refi or sale. From my understaning, they don't really care about collecting the monthly income but would like to make a good return on their money upon sale/refi.
Can this be done with self directeds?

Jon,
Thanks for the info. I guess my question is, how would I go about structuring it if we both agree on deferred payments? He doesn't really care about monthly payments, upon the sale/refi of the property, he wants to make percentage on the money.
He is rolling over a portion of his IRA to Guidant Financial for the purpose of being able to fund my real estate deals. So we are not exactly sure how to structure it, if there are stipulations on how the IRA will realize profts, etc. Does it HAVE to be in the form of monthly payments, or can we set it up as a balloon upon sale/refi?

Katrina,

To add to Jon's comments, it is not necessary to have the friend's IRA funds transfered to a checkbook or IRA LLC such as Guidant for your deal together. The IRA LLC is advantageous if and when you as the IRA owner, invest in time sensitive investments. It would only take a few days to get the money funded by requesting rush service (which does incurr additional costs). I say this only because it is much more costly to set up an IRA LLC rather than using the traditional administartors such as Equity Trust (in my opinion, the best).

As far as setting up the contracts (promissory note and deed of trust), I can help you with that. I do them all the time and can get you a format to go off which could save you hundreds, or thousands of dollars in attorney fees.
Contact me for info.

I don't have any direct experience with Equity Trust. I have used Sterling, though. As long as the deal does not violate any of the prohibited transaction rules, and meets Sterlings guidelines, they will approve it. You really, really don't want to violate the prohibited transaction rules. If you do, the ENTIRE IRA (i.e., all the money in that particular account), is immediately considered a distribution, and is subject to taxes and penalties.

That's mostly what they're looking for.

Sterling had a few additional rules. They wouldn't let you invest in an unsecured loan, for example. But, mostly they're looking out for prohibited transactions. With the IRA LLC, you're still on the hook to avoid these, but you have to do it yourself.

The issue I had with Sterling was time. It took about two weeks to get a deal funded. If i pushed, it would happen a little faster. Then, when trying to release a lien on the most recent deal, it took a month. That's very unreasonable, IMHO, to just get a document signed and notarized, and get it and the original deed of trust back to me.

Originally posted by Will Barnard

With Equity Trust, I never had them ever question or ask on any letter of direction. I sent them the instructions, and they performed the paperwork. It is ultimately up to you to follow the IRS rules and guidelines as they relate to SDI's. They would not deny your direction of investment. The key factor here is what Jon said, do not involve any disqualified parties (which in your situation you explained, you are not) and do not participate in any prohibited transactions (you are not from your example). Therefore, there is no problem with using ETC for your investment with the friend's IRA.

If you need help with what is or is not a disqualified party or prohibited transaction, I can answer those questions specifically for you.

Thank you very much. I am not worried about being a disqualified person or performing a disqualified transaction. Now my question is the timeliness of these services. How long does it take for the initial set up of the SDI and how long do they take to fund the deals? I plan on dealing with REO's and/or motivated sellers... I don't intend on bidding at auctions but it is not out of the realm of possibility.

Same question goes to Jon with Sterling.

I appreciate all the info.

Setting up an account at ETC can be done online and only takes the time to fill out the docs, then you have an account. Funding the account has nothing to do with your SDI admin, but the administrator of where the funds are coming from. The faster they are, the faster your ETC account is funded.
You could then make a direction of investment (doi) that day, and they will take as little as 2 days to process and send out the funds. The funds can be sent via snail mail (longer), wire transfer (immidiately, but add. costs), or next day air (add. costs).

If you want to do REO and pre-foreclosures, ETC will be sufficient. If you want to move into Sherriff Auctions, you will need check book access as you have only hours to pay.