Seller finance through self-directed IRA

7 Replies

My tenants are interested in buying their rental from me but need time to improve/establish their credit as well as save up a down payment. This rental is titled in my name and I have a mortgage on it. Put aside whether or not this would make sense financially as I still have a lot of numbers to crunch on that end but is it possible to finance this sale for my tenants through an IRA that I have and if so what's the high level process in doing so?

@Jon K.

No, this would not be possible. You can not mix your IRA with your personal investments/finances, IRS rules prohibit that.

@jon 

@Jon K. you should consult with self directed IRA specialist instead of forums.

I know for sure my client was investing his IRA in investment properties, your case would be like you're a HML, which is an investment of your money.

I don't know how it's done technically but if people do it do could you

@Jon K.

I give you an A for creativity but an F for compliance. :)


Any transaction that does not only benefit your IRA or solo 401k plan, but instead you personally or someone you know who is defined as a disqualified individual (e.g., your parents and children, for example) by the IRS will be deemed prohibited.

Unfortunately, such transaction would violate the following prohibited transaction:

https://www.irs.gov/retirement-plans/plan-particip...

@George Blower @Dmitriy Fomichenko this is completely academic question... The transaction is really the SDIRA creating a note for the buyer, and not buying or selling the underlying property. Wouldn't the SDIRA be doing business with the tenants/buyers and not the seller IRA holder? In this way couldn't you argue that the transaction isn't with a disqualified individual?

@John-David Herlihy

The IRS rules state there may be no direct or indirect transactions or benefit between a plan and a disqualified party. By using the IRA to facilitate the sale of a property he owns personally, the IRA would be providing a benefit to Jon.

One way to do this, I *think*, if the invstor is interested in having an ongoing stream of income is to have his SDIRA buy anohter property INSIDE of the SDIRA, which can THEN be sold on contract.

Say his SDIRA has 100K, he buys a property with the cash in the account in the NAME OF THE ACCOUNT. He THEN can sell it on contract through his SDIRA. 

To you experts on here, if that is wrong please speak up! Just my understanding of it, I have NOT done it that way yet.

Hope that makes sense, Dan Dietz