Non-recourse loans for LLC under SDIRA?

[Whitney Huestis]

My husband and I are in the process of setting up an LLC under our self-directed IRA. We are just now finding out that we will need a non-recourse loan, so I'm looking for someone who can offer that product or has any advice on this type of situation. Wanted to purchase a 2-4 (possibly 5) unit multi family. Thanks!

[Savannah Wallace]

Hi Whitney,

I have a lot of clients who utilize their SDIRAs to invest in real estate, but often they neglect to set up an LLC for the property, and it is something that I always recommend. Glad to see that is already something that is in the works for you!

As you've noted, you'll need to obtain a non-recourse loan when using your SDIRA to invest in real estate, otherwise, you'll generate UBIT as a result of UDFI (Unrelated debt-financed income). Another strategy to consider in the future is using a Solo 401(k) instead of an IRA, as Solo 401(k)s are generally exempt from UDFI on real estate investments.

We know that the IRS has strict rules regarding prohibited transactions and self-dealing. You cannot buy, sell, or lease the property to or from your SDIRA, nor can you personally use the property. You cannot take a salary, directly handle negotiations, or provide services (like repairs or management) to the property. All work must be performed by third parties, and all payments must come from the SDIRA. All income generated by the property must go back into the SDIRA, and all expenses must be paid from the SDIRA.

Here’s a resource I have for my clients for obtaining a non-recourse loan -  RainStar Capital

Good luck with this new property!

Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.