Maybe this is ludicrous or not sure if it has been done before, but has anyone been able to do a wrap-note with a self-directed IRA If you're trying to do the BRRRR strategy?
I purchased a house using HML and will be seller financing it to an end buyer, but would like to use my self-directed IRA to do the refi and wrap the note around. I'd appreciate the assistance!
What you are considering is not possible within the IRS rules.
You are a disqualified party to your IRA, and may not transact with or create any kind of direct/indirect benefit between you and the IRA. So, the IRA may not provide financing to a purchaser of the property that you personally own.
Even though the property is under an LLC and I'm seller financing to someone else?
Yes it is still prohibited because you own the LLC. if your Ira purchased it in the beginning with the HML you could do it —but you may have to pay UDFI tax based on LTV and income.
In no way whatsoever may the IRA and yourself intersect. Now that you own this property, the IRA may never be involved in the transaction. No workarounds.
Work around—Take a distribution from your Ira, pay the tax and penalty, and do what you want with the cash.
@Dmitriy Fomichenko You mentioned that "all transactions involving an IRA must be 'arms length' ". But doesnt being in an LLC that you have less than 50% investment in get around that rule? For example if me, my wife and one other person form a LLC that would bring my investment to 33.3%. Would that not work? Or is it that I can't use the IRA at all in this capacity?
@Nik Moushon , both you and your wife are considered disqualified to your IRA. But even if together you own less than 50% of the LLC, if your IRA enters into a transaction with this LLC - it will likely to be a "prohibited transaction" depending on the circumstances.
If you want to stay out of trouble - keep your IRA 'arms length' from yourself and other disqualified parties.
Thanks. I think I'm just trying to find a loop hole and its just not worth it. Thanks again.
To learn more about the IRA prohibited transactions, see the following.