Self Directed IRA - Mobile Home Park Investing

Mobile Home Park Investing
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Self Directed IRA - Mobile Home Park Investing

Toshiki Hoshino
Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes

Hello BP,


What are some of issues that can arise from using self directed IRA to purchase mobile home park with partners? It would be all tenant owned homes. Thank you in advance!

Tosh

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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
7y

@Toshi Hiraoka

I'm sure a self directed custodian originator will get upset with this...

I am very against SDIRAs, Self Directed Roths or any tax sheltered retirement accounts because you are subject to UDFI (more details below) and cannot leverage your investment which is a pillar in real estate investing. If you want to do one here is a big list of them. Knock yourself out but I cashed out mine a while ago because I plan to live off my cashflow and retire well before the Government allows you to tap into your retirement account.

If you have distrust on where this country is going you need to expect that taxes will go up in the future. How else will we pay out for all these bank bailouts and quantitative easing.

What is the largest source of Revenue for the US IRS?

401K, SDIRA, IRAs, even Roth’s when not if they can change the tax laws. Basically qualified retirement money. People are not spending it and you can bet the IRS is going to get it.


You will pay taxes now or later and you will likely to pay more taxes in the future because you will make more money... so pay it now. Most people think they will be in a lower tax bracket in the future because they plan to downgrade their lifestyle... this is again incorrect money myths that are so prevalent.

By taking you money out early you will incur a 10% penalty but if you understand how you can easily get 20-30%+ returns in real estate a year that 10% penalty is nothing. You can recoup that in 6-18 months.

It's a no brainer... the numbers don't lie. Do the math.

Yes taking money out of your retirement account is a sin for most people.

Just make sure you don't buy jet skis and put it in cash flowing assets like rentals or syndications. Or start a business if your are exceptional at business.

QRPs or qualified retirement plans (Solo 401ks, checkbook IRAs, etc) are the answer to that person with a bunch of money in their existing 401K or IRA.

It's pretty typical that someone listens to the Simple Passive Cashflow podcast, signs up for the investor club, and books a free intro call has 200k-600k locked up in garbage retail investments AKA 401K.

Stop whatever you do don't roll over an old employers 401K into your current employers 401K. If you have money in your current employers 401K its stuck there. You need to quit your job. Well there is this one obscure tactic if you live in a Red state that could work but for you it's easier to take a loan from the existing 401K to start investing in hard assets.

If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts that you can't touch till you are old.

When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using SDIRA's you have to get second tier financing options because its more risk for the bank, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

Caveat: If you are late to the game and already have a 401k over $100,000 then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it.

I work with people to come up with a strategy to withdraw their 401k to minimize taxes. Sometimes we need to get creative with oil & gas investments, land conservation easements, or bonus depreciation.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    7y

    Same as any other real estate investment. It can be very easy to accidentally mix funds, provide your SDIRA a service, or do some other prohibited thing. If you're in a separate, non-SDIRA business partnership with these folks, then they would be disqualified as well.

    It really comes down to the details. You can buy real estate with a SDIRA, but the how and whom are super important.

    1Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    Thank you for your reply Taylor! Just to clarify I have the SDIRA and my other partners do not. From your answer I would not be able to invest using SDIRA?

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    7y

    @Toshiki Hoshino

    Your self-directed IRA can partner with other investors to buy Mobile Home Park. All transactions involving your IRA must be "arms length", which means that "disqualified person" can't be involved in the transaction in any capacity. Rules also do not permit any direct or indirect benefit from IRA. 

    0Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    Thank you Dmitriy! I understand better now. Can you please clarify "

    Rules also do not permit any direct or indirect benefit from IRA"? For example, if I inherit a mobile home due to non payment by the tenant and I sell it to another tenant on REC, is that considered direct benefit? Thank you in advance!

    0Reply
  • Michael Slockers
    Real Estate Entrepreneur · Owasso, OK · Member since 2015 · 220 posts · 154 votes
    7y

    @Toshiki Hoshino It means in no way can you or your family benefit. Any benefit from the investment must be to your SDIRA and not to you.

    Example: I'm doing a SDIRA flip in broken arrow Oklahoma. We buy the house and there is a nice mower in the backyard. I want it. But since that would be Benefit to me directly, I'm not gonna get it 😉.

    Likewise all bills paid on this house must come from my SDIRA and all profit must go into my SDIRA.

    2Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    @Michael Slockers

    Got it! Thank you Michael for your feedback!

    0Reply
  • Justin Robert
    Investor · Temple, TX · Member since 2015 · 111 posts · 83 votes
    7y

    @Toshiki Hoshino This might be pretty obvious but ensure your SD IRA has cash reserves for the deal. Hypothetically if it all went into this park and your partnership had a cash call for say a big maintenance item like a septic tank failed, you can't just fund it from your personal checking account. Again, that might be obvious and implied from the above responses, but that would be my initial check to make sure your SD IRA can handle that.

    I purchased a 1.5 acre property last year with my SD IRA. I rent half as a travel trailer spot and the second spot has a shop someones uses as a small car lot. The return is far greater than what I can expect in the stock market and its 1000% more enjoyable to drive by and see my investment.

    Good Luck! 

    3Reply
  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    7y

    @Toshiki Hoshino

    Good responses -in summary yes you can use a SDIRA as a partner and you must pay attention to the rules.

    However, partner problems in business and love can run afoul. The SDIRA does not help with picking good partners or alleviating the pain of incompatible partners. Good luck.

    [email protected]215-283-2868
    2Reply
  • George SkidisPro Member
    Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
    7y

    1. Carl Fischer knows more about Self Directed investing than any 10 people I ever met. Follow his advice. You can also invest with him. This is what he does.

    2. There are some arm's length transaction rules you need to find and memorize. You need to be extremely careful about not running anything yourself.

    3. We have run a mobile home park for years. I highly reccomend this type of investing. The biggest problem is coming up with the cash to buy one.

    4. Always vet your investing partners more severely than your tenants. I have a good friend who got into a big land deal, lost millions and went bankrupt. His "Partners" left him holding the bag. He was a smart guy with over 200 rental units. He lost it all. Performing due dilligence on your "future" partners is the most important aspect of this opportunity. It might be worth hiring a Private Investigator to check them out. I guess the question in my mind is "Did they find you, or did you find them?" When in Doubt - Check Them Out!

    Good Luck and Good Investing

    2Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    7y

    @Toshi Hiraoka

    I'm sure a self directed custodian originator will get upset with this...

    I am very against SDIRAs, Self Directed Roths or any tax sheltered retirement accounts because you are subject to UDFI (more details below) and cannot leverage your investment which is a pillar in real estate investing. If you want to do one here is a big list of them. Knock yourself out but I cashed out mine a while ago because I plan to live off my cashflow and retire well before the Government allows you to tap into your retirement account.

    If you have distrust on where this country is going you need to expect that taxes will go up in the future. How else will we pay out for all these bank bailouts and quantitative easing.

    What is the largest source of Revenue for the US IRS?

    401K, SDIRA, IRAs, even Roth’s when not if they can change the tax laws. Basically qualified retirement money. People are not spending it and you can bet the IRS is going to get it.


    You will pay taxes now or later and you will likely to pay more taxes in the future because you will make more money... so pay it now. Most people think they will be in a lower tax bracket in the future because they plan to downgrade their lifestyle... this is again incorrect money myths that are so prevalent.

    By taking you money out early you will incur a 10% penalty but if you understand how you can easily get 20-30%+ returns in real estate a year that 10% penalty is nothing. You can recoup that in 6-18 months.

    It's a no brainer... the numbers don't lie. Do the math.

    Yes taking money out of your retirement account is a sin for most people.

    Just make sure you don't buy jet skis and put it in cash flowing assets like rentals or syndications. Or start a business if your are exceptional at business.

    QRPs or qualified retirement plans (Solo 401ks, checkbook IRAs, etc) are the answer to that person with a bunch of money in their existing 401K or IRA.

    It's pretty typical that someone listens to the Simple Passive Cashflow podcast, signs up for the investor club, and books a free intro call has 200k-600k locked up in garbage retail investments AKA 401K.

    Stop whatever you do don't roll over an old employers 401K into your current employers 401K. If you have money in your current employers 401K its stuck there. You need to quit your job. Well there is this one obscure tactic if you live in a Red state that could work but for you it's easier to take a loan from the existing 401K to start investing in hard assets.

    If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts that you can't touch till you are old.

    When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using SDIRA's you have to get second tier financing options because its more risk for the bank, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

    Caveat: If you are late to the game and already have a 401k over $100,000 then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it.

    I work with people to come up with a strategy to withdraw their 401k to minimize taxes. Sometimes we need to get creative with oil & gas investments, land conservation easements, or bonus depreciation.

    4Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    7y

    @Toshiki Hoshino it is pretty common to invest in mobile home parks with a SDIRA.  The long term, recession resistant nature of the asset class lends itself to be a good fit for SDIRA money.  With that said, the best relationship to keep your SDIRA investment compliant is to not have your hands in the operations of the deal in any way.  If you are investing in a syndication as a passive investment, that would be very suitable, but if you intend to participate in the day-to-day on the project, you might want to reconsider.  

    1Reply
  • Harpreet Singh
    Rental Property Investor · Chapel Hill, NC · Member since 2019 · 26 posts · 2 votes
    7y

    Are there property managers for mobile home parks? Or having a manager on site is good enough to meet SDIRA requirements?

    0Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    @Harpreet Singh there is a property manager on site and I don’t think this is violating SDIRA rules.

    0Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    @Jack Martin when you say being involved in day to day operation, you mean doing actual work at the park yourself, etc correct? I understand it is against the SDIRA rules.

    0Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    7y

    @Toshiki Hoshino I mean any involvement.  When you invest with your SDIRA, you cannot indirectly of directly benefit from your SDIRAs ownership of the investment, nor can your SIDRA indirectly or directly benefit from your efforts.  You should not have an active role in the project, regardless of what the role is.  SDIRAs are best used as investment vehicles in real estate when you have a completely passive role where your SDIRA is investing, but you have nothing to do with the management, operations, or any role in the investment.  

    0Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    @Jack Martin How are other investors using SDIRA to invest in MHP doing it then?

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    7y

    @Toshiki Hoshino

    You certainly can use your self-directed IRA to invest in MHP, but only as passive investor. Someone else must do the management and all related work. 

    2Reply
  • Toshiki Hoshino
    OP
    Real Estate Broker · Albuquerque, NM · Member since 2018 · 37 posts · 2 votes
    7y

    @Dmitriy Fomichenko Thank you Dmitriy! That is how I understand about SDIRA.

    0Reply
  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    7y

    @George Skidis

    Thank you George.

    [email protected]215-283-2868
    1Reply
  • John FortesPro Member
    Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
    7y

    Amen @Lane Kawaoka! Thank you! Love your opinion on this as I've had the same and practiced it as well. Took the 10% hit in 2018 but planned accordingly with my accountant to do so. Appreciate you!

    1Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    7y
    Originally posted by @Toshiki Hoshino:

    @Jack Martin How are other investors using SDIRA to invest in MHP doing it then?

    Through passive involvement in MHP syndications.  They are simply capital partners, and have no hand in the day-to-day operations.  That way the investment is completely hands off and there is no risk of prohibited transaction to their SDIRA. 

    1Reply
  • Keith Meyer
    San Diego, CA · Member since 2017 · 105 posts · 55 votes
    5y

    Could your SDIRA make a loan to a separate LLC owned wholly by several of your business partners and used to purchase mobile homes to bring into the property? You would not be directly profiting from the homes sales, but indirectly would benefit when a new occupied home is achieved at the property.

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    5y
    Originally posted by @Keith Meyer:

    Could your SDIRA make a loan to a separate LLC owned wholly by several of your business partners and used to purchase mobile homes to bring into the property? You would not be directly profiting from the homes sales, but indirectly would benefit when a new occupied home is achieved at the property.

    Let me see if I am understanding your question correctly. 

    You own Company A with a bunch of partners, and Company A owns the MHP. 

    Those other partners form Company B, to which you will be lending money from your SDIRA.

    Company B buys mobile homes to put into your MHP with the money your SDIRA lends it?

    When you have to get creative like this, I'm guessing the IRS will NOT look favorably upon the transaction. I wouldn't risk it. 

    If I'm misunderstanding the situation, please correct my assumptions.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    1Reply
  • Keith Meyer
    San Diego, CA · Member since 2017 · 105 posts · 55 votes
    5y

    Thanks @Mindy Jensen. It looks like you are correct based on the last IRS disqualifed persons rules listed below, since the partners in Company B would be more than 10% shareholder partners in Company A:

    Disqualified Persons

    • You, the account owner
    • A beneficiary of the IRA
    • Your spouse
    • Your lineal ascendants
    • Your lineal descendants and their spouses
    • Plan service providers and fiduciaries (including advisors, custodians, and administrators)
    • An entity (corporation, estate, partnership, etc.) in which you own at least 50% of the voting stock, directly or indirectly.
    • An officer, director or a 10% or more share holder or partner.
    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    5y

    @Keith Meyer

    IRS rules prohibit personal benefit from your IRA directly or INDIRECTLY. Transaction like this would be considered prohibited. 

    0Reply
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