JV, SDIRA, UBTI, IRS, Partnership Contract, Legal Entity

[Kishore P.]

Hello All:

My partner (Realtor) and I plan to get into a 50-50 % partnership by pooling our individual financial resources to invest as equal partners in a Residential Rental Duplex.

Background about JV:

• Acquisition Price for Duplex: $ 100,000 with an estimated Rehab Cost: $ 20,000.00.
• Estimated Rent/Unit/Month: $ 700.00
• Equity: 20 % and pay for the Rehab ourselves and finance the rest.
• Goal: Cash flow by renting for the Duplex with Property Management coming from Partner
• FYI, My investment is going to be coming from a Self Directed IRA.

Question:

• (a) What do you propose I formulate a partnership that will prevent the SDIRA from being declared as Undeclared Business Income Tax (UBTI) by the IRS?
• (b) I've also told that if Capital is funded by IRA then the Equity Stake has got to be a minimum of 40 % ?
• (c) If (b) is correct then would I suggest to partner to bring in 40 % Equity as well to maintain the 50-50 partnership to keep it simple?
• (d) Referral for Banks that do non-recourse loans?
• (e) At some point in the future if I refinance and take my cash out and return capital back to the SDIRA, will my share of the Revenue be Tax-Free because it was funded from my SDIRA or should my SDIRA continue to have equity stake in the venture to continue Tax-Free Dividend/Income.
• (d) Would make sense to form LLC for this Joint Venture?

Any input from experienced individuals is highly appreciated.

Thank You
Sincerely

Kishore. P

[Kishore P.]

John Anderson

@ John Anderson: Appreciate your counsel John.

If I'm interpreting what you are saying is that we may have to 100 % finance potentially expose us and unable to leverage other people's money. 

My current SDIRA custodian leads me to believe Real Estate Investing in an SDIRA in Rental Income Properties is fairly simple. In reality when I dig in more there are so many restrictions, it's very discouraging.

Thank You

Sincerely

Kishore. P

John Anderson