Self Directed IRA from a relative

[Brandon V.]

Hi BP,

I have a relative who has a lot of money in a ROTH IRA currently but they would like to help me out to fund another rental property. Would using the ROTH IRA from this relative be an option if they were to convert the ROTH IRA into a self-directed IRA and then use that money for the downpayment? Ideally they would only want to be an investor with a specific interest rate of return (act like a hard money lender) but use the funds from the self directed ROTH IRA with the mortgage in my name. Has anyone done this before or used a company to do this? In addition, would the profits be taxable or non taxable since the money was coming from a ROTH IRA? I would assume that if he lended me $25,000 @ 10%, I would be able to write off that interest expense, he would be able to take that as nontaxable income that goes back into the self directed IRA and the excess cash-flow would be my taxable income? Does this sound accurate?

Thanks!

Brandon

Milwaukee Wisconsin WI

[Dmitriy Fomichenko]

Brandon, if the relative wants to be the lender to you to buy this investment property - that is possible. They will receive an interest payment based on the terms of the loan that you will agree to. They money they are lending to you will not be a down-payment, it will be a loan. If you wish to use additional financing you would have to obtain another loan.

As the owner of the property all income and profits will be taxable for you. But all interest income on the loan to your relative's IRA will be tax free. The interest you pay on a rental property will be tax-deductible for you.