Partnering with your own SDIRA???

Question

Hello,

I think I am making headway understanding things in this realm of SDIRAs, but still have a bit of confusing.

I read in different places that a person 'Can partner with your own SDIRA' to do real estate deals. I am under the impression that this 'has to be done from the beginning' and 'cannot be undone'. Those two concepts I fully understand as my father, brother and I formed a three way partnership (LLC actually) that our three independent SDIRAs each own a third of. Started that way and has to stay that way.

I also am starting to understand, thanks to lot of help from here on BP, that I can NOT do a deal where my (or any other prohibited party's) SDIRA makes the 'down payment' (say 25%) towards a loan that I would then take out in my own name outside of the SDIRA.

Sooooo, how CAN these deals work then? Let's use a 125K property that I could get for 100K as an example.

• 1) Could my SDIRA be a 20% owner with 'cash' from the SDIRA (no loan), and  then I put down 25% (20K) on a loan for the balance of the 80% (80K)? (my down would be the collateral for the traditional financing, NOT the value of the SDIRA portion)
• 2) Could my SDIRA be a 20% owner, and use 'owner financing' for the remaining 80% with what ever terms we agreed to (25% down on that portion)?
• 3) IF #1 or #2 could work, assume I  went to refinance after seasoning for 2 years, and the property appraised at 125K. At that time, the SDIRA would still own 20% (25K) leaving 80% (100K with a loan balance of 55K) as non - SDIRA for conventional financing. If I could borrow 75% of the 'non - SDIRA' portion (75K), could I essentially 'cash out' by paying off the 55K loan on the non - SDIRA portion and recapturing my initial 20K down payment so that I could re-invest it into another property?

Thanks for any feedback,

Dan Dietz

Steven Hamilton II · Answer

I wouldn't touch that route at all. You run into an economic benefit issue that causes a prohibited transaction. Basically meaning if you can't do it yourself and your IRA can't do it itself. You both are gaining personally.

Gil Hartman · Answer

Option 1 is out of the question, as anytime your IRA is involved, you need to get a Non-Recourse Loan. Your IRA can't be used as collateral.  However, you could do option 2 (seller financing or seller carry-back). In this scenario,  there is an actual note drawn up stating that it's a non-recourse loan. The IRA takes legal ownership of the property as soon as closing happens, and the seller holds the mortgage, which is essentially a lien. If you default on the mortgage, the seller has to foreclose on the property, the same way a bank would.

Daniel Dietz · Answer

Any thoughts out there?

Dan Dietz