Very new to BP and this is my first post, I'm looking for some specific details on SDIRA. I have been reading and learnning quite a bit about the topic, most from BP forums. Ultimately, i believe the SDIRA LLC will be the best option for me, but for now here is my question.
Can I use my SDIRA for a downpayment? say 30% and private funding for the remainning?
If so, once i rehab and sell the property how much do i have to return to the SDIRA.
Here is a very basic example
Purchase price 100K
Funds from SDIRA 30K
Private Funds (Hard Money) 70K
Sale price 150K
Thank You all in advance!
Welcome to BiggerPockets community Marcony!
You can use SD IRA to purchase a property, and you can use financing. Remember, it is the IRA (not you) who is the owner. When using leverage, the loan must be non-recourse. When the property is sold - all profits belong to the IRA, you personally can't touch any of that.
Also, if you start running flipping business out of your IRA - the income from such activity will result in UBIT tax since IRA designed to be invested passively.
I logged in to answer...but I see dmitry beat me to it. Good luck finding a hard money lender to do a 70% NON-recourse loan though. They are going to want your personal guarantee, which would be a no-no.
As noted above, your proposed strategy comes with some complexities and may not be the best approach for IRA dollars. Remember, with a self-directed IRA, it is all about diversification for the IRA to obtain better results for the IRA. Risk/reward is a key component to evaluate, and I would put regulatory complexities on the risk side of the equation.
Better approaches more suited to an IRA would be to have the IRA be a private lender and loan money to other unrelated flippers, or to buy a property with IRA funds and a mortgage that would be held long term for rental income.
Keep researching and get on the phone with a few professionals in the field. A strategy that will help you get better return for your IRA is certainly possible.
You have some great answers above. There are banks that will loan non recourse but not for flipping. Other people that have IRAs can also provide lending services- if the deal is good you can get a non recourse loan. You most likely will pay UBIT/UDFI tax on flip. All should be considered as @Brian Eastman suggested.
Partnerships with your IRA are also possible. There are at least a dozen different ways to accomplish a deal like your example. PM me if you need some ideas of what other SDIRA account holders do.
You do have great information already, and there are lenders that will lend non recourse for a short term loan. We have a list of non recourse lenders that can help get you started, should you decide to go this route. I also suggest you call around to SDIRA administrators and find one that can walk you through your strategy and rules, including UBIT.
Let me know if you would like a copy of the list.
Thank you all for your feedback. I'm reviving this post to let you know that I've moved forward and began creating SDIRA!. Thank You Dmitriy for your assistance. Looking forward to what lies ahead!
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