Self Directed IRA vs HELOC

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Estevan BenavidesPro Member
Investor · Dinuba, CA · Member since 2024 · 20 posts · 10 votes
2y
Quote from @Steve Tse:

You are right, the interest is at 8.5%, but with SDIRA all cash flow goes right back in to IRA. So what makes more sense ?

Steve, the question should be more along the lines of whether you want to build a retirement fund vs try to bring in passive income now. Yes, the SDIRA funds will flow back to that account, but that is the point of that investment vehicle. If the goal is money now, you need to make sure whatever you invest in is outpacing the interest on the HELOC otherwise you’re only spinning your wheels. 
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  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    2y

    With the WSJ Prime Rate in the 8%s, you're probably in the 9%s on your line right now (just an assumption). If that syndication doesn't work as well as you hope, then you're eating interest. On the other hand, if you've got liquidity in the IRA it needs to be working for you. Longer-term money like that means you can be more patient without constantly hearing the tick-tick-tick of interest racking up on the pull from the HELOC. That being said, you know your situation the best. Good luck!

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  • Steve TsePro Member
    OP
    Member since 2021 · 100 posts · 16 votes
    2y

    You are right, the interest is at 8.5%, but with SDIRA all cash flow goes right back in to IRA. So what makes more sense ?

    0Reply
  • Estevan BenavidesPro Member
    Investor · Dinuba, CA · Member since 2024 · 20 posts · 10 votes
    2y
    Quote from @Steve Tse:

    You are right, the interest is at 8.5%, but with SDIRA all cash flow goes right back in to IRA. So what makes more sense ?

    Steve, the question should be more along the lines of whether you want to build a retirement fund vs try to bring in passive income now. Yes, the SDIRA funds will flow back to that account, but that is the point of that investment vehicle. If the goal is money now, you need to make sure whatever you invest in is outpacing the interest on the HELOC otherwise you’re only spinning your wheels. 
    1Reply
  • Steve TsePro Member
    OP
    Member since 2021 · 100 posts · 16 votes
    2y

    @Estevan Benavides Lets say that ROI on a syndication deal does outpace the HELOC rate, my question is what do you prefer to go with since HELOC vs SDIRA are two very different tools when it comes pulling capital from.

    With HELOC, you borrow against your HELOC credit, pay the interest while you are in the syndication and eventually pay the borrowed amount back. All cashflow after that will go directly to your bank account.

    When you make contributions from SDIRA on the other hand, you don't get to enjoy the cashflow and all profits right away since all proceeds go directly back into the IRA account and you end up paying taxes when you are ready to cash out.

    My question is what method do most investors prefer to go with when investing in syndications ?

     

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  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y
    Quote from @Steve Tse:

    @Estevan Benavides Lets say that ROI on a syndication deal does outpace the HELOC rate, my question is what do you prefer to go with since HELOC vs SDIRA are two very different tools when it comes pulling capital from.

    With HELOC, you borrow against your HELOC credit, pay the interest while you are in the syndication and eventually pay the borrowed amount back. All cashflow after that will go directly to your bank account.

    When you make contributions from SDIRA on the other hand, you don't get to enjoy the cashflow and all profits right away since all proceeds go directly back into the IRA account and you end up paying taxes when you are ready to cash out.

    My question is what method do most investors prefer to go with when investing in syndications ?

     


     our general rule is use heloc for something we can pay back in less than 2 years. SDIRA is retirement and fits into our 10-15 year. So for us if we can pay it back in 2 years or less, we will write off that interest and have it paid back in that period and look for the next deal. 

    we find that if it doesnt pass our heloc test it wont pass  our SDIRA test...

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  • Steve TsePro Member
    OP
    Member since 2021 · 100 posts · 16 votes
    2y

    Perfect Nathan, investment time frame is one good way of looking at it. Can you think of any other pros or cons going with either of the tools ?

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  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y
    Quote from @Steve Tse:

    Perfect Nathan, investment time frame is one good way of looking at it. Can you think of any other pros or cons going with either of the tools ?

    Pretty much all that have been mentioned here between the two vehicles.

    a lot of the other items come into play based on your own specific financial situation.

    so for what you have provided that is all
    0Reply
  • Estevan BenavidesPro Member
    Investor · Dinuba, CA · Member since 2024 · 20 posts · 10 votes
    2y
    Quote from @Steve Tse:

    @Estevan Benavides Lets say that ROI on a syndication deal does outpace the HELOC rate, my question is what do you prefer to go with since HELOC vs SDIRA are two very different tools when it comes pulling capital from.

    With HELOC, you borrow against your HELOC credit, pay the interest while you are in the syndication and eventually pay the borrowed amount back. All cashflow after that will go directly to your bank account.

    When you make contributions from SDIRA on the other hand, you don't get to enjoy the cashflow and all profits right away since all proceeds go directly back into the IRA account and you end up paying taxes when you are ready to cash out.

    My question is what method do most investors prefer to go with when investing in syndications ?

     


    If the goal is money now go with the HELOC, you'll get the presumed cash benefits as well as tax benefits associated with investment property ownership. But again, if the idea is to grow the retirement account, SRIRA is the better option. I have to say like many others, in many other situations, it depends.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Steve Tse:

    Hi BP folks, 

    I am investing in a multifamily syndication and looking for opinions on whether to make a contribution out of my SDIRA or use a HELOC ? Would be interested to hear pros and cons.

    Thanks

    Side note to this is if they are taking on leverage in the syndication you will be subject to UDFI so if they get 65% financing 65% of what you get is taxed with the SDIRA. This is why I like to put my SDIRA money in debt funds since no UDFI

    With the HELOC you are basically breaking even on the deal most likely or make very little whihc at that point is it worth the risk.

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  • Steve TsePro Member
    OP
    Member since 2021 · 100 posts · 16 votes
    2y

    @Chris Seveney Thank you, very true and very helpful to know about UDFI tax !

    0Reply
  • Jaime Raskulinecz
    Roseland, NJ · Member since 2012 · 73 posts · 20 votes
    2y

    UDFI is a real thing, however, there are also some expenses that can be used to offset some of that. I have never had anyone tell me that any deal wasn't worth it due to UDFI.

    I will echo the other responses and say that it entirely depends on what your gaol is in making the investment and how the numbers stack up when you run them to see what works best for you.

    Good luck!

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