Self directed IRA questions?

10 Replies

Questions for you self directed IRA Gurus:

Can I buy a property as the following:

50% my own cash (under an LLC)

50% of my self directed IRAs LLC

Is this legal? And if it is, can my personal LLC withdraw 50% of the profits (rent, gains at sale) legally?

Does it make a difference if the arrangement is more:


30% cash LLC

Do you have to buy properties full cash outright with a self directed IRA, or could my IRA/myself get a commercial mortgage?

Since myself (cash, under LLC 1) would be a normal entity, could that portion of ownership gain the tax benefits of depreciation, etc that a normal investment would have? (I know the IRA LLC does not benefit from these tax advantages)

Sorry guys I’ve tried googling this stuff and I cannot find great answers on this scenario. 

@William Castiglione

Read this discussion on the same subject (it talks about 401k but the concept is the same):

Why do you consider this? 

You don't have to have all cash, your IRA can buy a property using leverage but you must utilize non-recourse financing (no personal guarantee is allowed according to the IRS rules). There is a handful of lenders offering this type of loans, here is a list that you may find helpful:

@Dmitriy Fomichenko @George Blower

I have an investor that wants to buy a property in AZ from me, through his old SDIRA from a previous employer in CA. He says he can no longer add funds to the SDIRA. I bought the property using Subject To, (I took over the loan) so there is an existing mortgage payment he would be taking over. I am selling it to him for $50k plus closing costs plus he takes over making payments on the underlying financing. The property is worth about $210k.

Title will transfer to his SDIRA. However, the underlying financing stays in the name of the person I bought the property from. It will Net him about $700 a month in cash flow as a turnkey plus he gets existing equity. He is going to put a Tenant Buyer in, that will put $25k down as an Option fee to him (his SDIRA) with the fee to go back into the SDIRA. 

 He says he has the $50k but would have to bring in cash for closing. Can he bring personal cash in for the closing?

Can he/should he simply rollover the SDIRA to a 401(k) so that he can add funds? Can you help him put this together?

Account Closed

The starting point of "he has an old SDIRA from his employer" sounds fishy to me.  Most employer plans are not self-directed and capable of investing in real estate.

The deal you propose could work in a self-directed IRA. There are certainly some complexities such as exposure to taxable UDFI (unrelated debt-financed income) on the leveraged returns. The transfer of the asset, with the sub-to note and pending tenant option deposit will also be somewhat complex and perhaps difficult under a custodian managed self-directed IRA.

A self-directed IRA LLC or Solo 401(k) that would offer the investor checkbook control would be much better suited to this transaction.

@Brian Eastman @Dmitriy Fomichenko I think I understood him to say it was a SDIRA and he had only lent funds to a fix & flip at this point. He seemed to know as much as I do about SDIRA & 401(k)s (Limited and dangerous "knowledge" ;-) 

He says he is on BP so I will forward this link to him. The key here is that he wants to buy my  turnkey using an account that he believes he can't add funds to at this point and may want to buy a few more of my turnkeys in the future. He will need your help.

Account Closed

If he already has SD IRA he should be able to contribute but will be limited by new contribution of $5,500 per year as I mentioned above. I agree with you, he should be on this forum asking questions and providing accurate info about his situation, without knowing all facts we can't give accurate recommendation.

Account Closed

It would be helpful to know some about his situation and whether he has a self-directed IRA or Solo 401k. With either structure, it's generally recommended that you do not commingle retirement and non-retirement assets. Because of the prohibited transaction rules, doing so could be a violation of the rules, or at the very least, would limit your flexibility with the investment and increase the chances of a prohibited transaction occurring after the investment is made.

Here are some alternatives to commingling the assets:

  • using the Solo participant loan feature to do the deal outside of retirement funds
  • using non-recourse financing from a lender or private source in combination with retirement funds as the down payment
  • using a 401k or IRA and partnering with non-disqualified persons

@Mike M.

You bring up a good point in your recent post about a fix & flip. The IRA will need to have funds available to cover all the improvement costs in connection with the property. If he is unable to make annual contribtuions and/or transfer other IRAs or former employer funds to the IRA in order to cover future expenses it may not be wise to make such invetment.