Joint Venture & Self-Directed IRA's

3 Replies

Hello BP!

I am interested in exploring more of the options for receiving financing through a joint venture with a Self-directed IRA. I think this is a really great way to find and attract capital to your business, while creating cash flow and helping other achieve their retirement goals. I understand the majority of the logic behind it, however, I am getting hung up on one thing. From what I have read is the investor (catalyst) will go out find and manage the deal from start to finish while the partner will finance the flip, rental, etc. through their Self-Directed IRA. If you do a 50/50 JV agreement, the cash flow, initial investment and gain from the property much flow back into the IRA, correct? If so, does the cash flow and gain flow to the investor (catalyst) as cash? Is this something that you spell out in the JV agreement?

Secondly, If you have a person IRA, can you change that to a Self-Directed IRA and invest in a rental property that you are also living in?

Any help would be greatly appreciated!

@Mike Lowery  

the details and terms of the JV will depend on who the partner is and the agreement between the two of you.

If you have a conventional IRA yes you can transfer it into a self-directed IRA.

The retirement funds can be used only for investing, living in the property is not allowed since you are considered to be a 'Disqualified Person" to your IRA and therefore not allowed to receive any personal benefits from the investment.

The previous answer is correct.

I would just like say it sounds like you might be following the instructions of some program or guru.  The basic idea of it is fine but as usual there can be devils in the details.  

The issues my not come up but they may for the IRA owner. I use my 401K for JV of flips only to try to avoid these issues.

The general issue is that the IRA owner can have nothing to do with the direct management of the property (can't do maintenance, collect rent directly, etc). The problem can come in the case that the partnership or property begins to have problems. In a JV agreement, the money partner always needs to have the option to step in and take over management of the deal if things go bad. It is surprising how often the management partner flakes out for whatever reason. They have no cash in the deal so if it isn't going well, they disappear. They move, they get sick, etc., etc. Happens more than you might think and with a buy and hold, the longer the hold, the more chances for issues. Since it sounds like you are the manager, you might not think you would do that, but again, happens more than you think and the other guy should be protected.

The problem can be that the IRA owner is limited in what he can do to come in and take over because he has to be hands off. So that "transition" can be tricky. Not at all impossible to overcome, just something to be aware of.

@Mike Lowery Make sure you talk with whoever has your IRA, because someone wanted to Joint Venture a project with us and had his IRA with Udirect that is associated with American Estate and Trust, and he isn't allowed to do a Joint Venture, but can participate as a lender. Apparently the reason is that there would be nobody to represent the IRA's interests, etc. even though we would have been handling the whole project as managers and developers.

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