So I finally have enough in my roth IRA to possibly get involved in a flip but wanted to run it by your pro's before talking to my CPA/attorney to see if this is kosher.
I have ~40k in my roth that I plan to roll over into Quests' SD IRA.
Ive identified a property with a purchase price of 80k. I have a partner (not in list of disqualified partners) who will go in for the other 50% (40k) of the purchase price .
Since I don't have enough money in the SD IRA for expenditures/repairs, can I structure this so that my partner pays for the remaining 50% of the purchase price along with the repair costs (lets say $20k for simplicity) and ultimately split the proceeds according to costs? Meaning upon flipping, my SD IRA would get 40% of the sale and my partner would get 60%?
Such an arrangement would be fine. The IRA may joint venture with another investor and split the transaction in various ways. What you must avoid is any direct or indirect benefit between the IRA and a disqualified party.
Flipping in an IRA does create potential exposure to Unrelated Business Income Tax (UBIT) if your IRA engages in such transactions on a regular or repeated basis. Be sure to consult with your tax advisor on this topic.
With Quest, you will have a 3rd party processor and very little substantive guidance. That may or may not work well for what you are considering. Have you considered working with a true advisory firm that establishes a checkbook IRA LLC?
YOu might want to structure a LOAN for 6% interest rate and 25% of the profits. Something like that would probably work better. Just go over the details of the deal with your partner. You have to NOT do anything on the house. You really are going to be more of a lender on the deal.
With a loan that has participation on the back end still gets you a better rate of return. It would keep it passive also. You just can not legally do any work on the house.
This is a great thread