JV between my SDIRA and my friend’s Solo 401k

5 Replies

I'm wondering what the best way to structure this would be. I have funds in my SDIRA and my friend has funds in his solo 401k. We want to fund a rehab project where we will not be doing any of the work. We plan to make a loan to a third party rehabber that will be doing all of the work. Should we set this up as an LLC or a Trust of some kind? We want to combine our funds so that we are both in first position. I don't want one of us to be first and the other to be second. That brings up another point, if we crate a JV agreement I assume it would have to be between my SDIRA and his 401k. Do we have to get the custodians to sign off on it. Any recommendations or suggestions are greatly welcomed. Especially from @Brian Eastman and @Dmitriy Fomichenko

Thanks

@Julian Buick

On a flip project, it is better for IRA/401k money to be simply a lender collecting interest. Equity participation in repeated flip transactions can create UBIT exposure.

Both entities can be co-lenders on a single, 1st position note.  Work with a title company or real estate attorney to make that happen.  That will be much simpler than forming a new entity.

@Brian Eastman this would be a debt only deal, not an equity deal so UBIT would not apply. I have heard of notes where there are multiple lenders on the note, as in California where you can do fractionalized notes but I have not heard of them elsewhere. Is this state specific? I’m meeting with my RE attorney for lunch tomorrow so I will ask him. I figured you would probably know more than him though. 

@Julian Buick

I will have to defer to your local attorney.  This is an issue of state lending law.  Our expertise is focused on federal tax and retirement plans.  I have seen a lot of fractionalized notes over the years, however, so it is certainly more broad than just California.

Julian,

I agree with Brian's comment that you don't need an entity for both of you to lend jointly on a deal. What you need is a separate promissory note for the amount you each lending and one trust deed listing both lenders. I personally lent this way both in CA and out of state. You should coordinate this with the title company who handles the closing, they will ensure this is done properly. 

@Julian Buick

Whether done in an LLC or through the retirement accounts directly, both retirement accounts can be in first position.

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