SDIRA LLC Investment with a Partner?

Question

Greetings BP, I have a SDIRA LLC, with Midland IRA as custodian, that I created to invest in real estate. I have a lender who is willing to give me a non-recourse loan with a 30% down payment in the Bloomington, IL market. Is it possible to partner with another entity, say an individual, that is not a SDIRA? If so, must the loan remain non-recourse? I know that there are disqualified relations (parents and children etc). Thanks for any guidance or resources you can direct me to.

Dmitriy Fomichenko · Answer

@Mark Voss

First, your self-directed IRA CAN NOT partner with "disqualified person". It could partner with someone who is not disqualified. If this was a cash deal - the transaction would be straight forward. But since you are using financing - things can get complicated. Your ownership must be based on the amount each partner invests. The loan must still be non-recourse to you, meaning that you are not allowed to provide personal guarantee for the loan. If your partner is an individual (not a retirement plan) then he/she could guarantee the loan personally. It might be challenging finding a lender for such transaction as it is my understanding that most non-recourse lenders on this list will not want to lend if there is another party involved.

Dmitriy Fomichenko · Answer

... also if you use debt financing in an IRA - portion of the income derived from the financed portion of the property will be subject to Unrelated Business Income Tax. But truly self-directed Solo 401k is exempt from such tax on leveraged real estate. As real estate agent you are considered self-employed and will qualify for this retirement plan. It has number of other significant advantages over SD IRA which make it superior vehicle for those who are eligible. Are you aware of this option and have you considered it?

Matt Powell · Answer

@Mark Voss .. I am in the Bloomington, IL market. I know Dmitriy and have talked to him about self directed IRAs. I don't think I'd have any more to add than what he already said. However, I would say I could help you in this market if you need someone local and / or some questions!

Dmitriy Fomichenko · Answer

@Mark Voss

The fact that have a W2 job is irrelevant. As long as you have legitimate self-employment activity (which you do as a real estate agent) and don't have full time employees working for you - then you are eligible for Solo 401k.

Marti Ryan · Answer

Hi Mark,

Great questions and answers you have here.  Like Matt said... I don't have much to add. In fact,  I think Matt could add more than I on the IRA subject.  If I  recall correctly,  I  know Matt has chimed in on this topic many times at our local REI meetings here in Bloomington, IL. Right Matt :)

I'm the creator of the local REI group. My husband and I launched the group in 2014. Is be happy to assist you with your property search, when the time comes.  As a licensed Realtor, founder of the local REI,  and President of the local Landlord Association, I do have some local knowledge and often know about off market properties as well. I'd love to set up a Zoom meeting with you :)

Marti Ryan

Mark Voss · Answer

Thank you Dmitry and Matt. I have not considered the Solo 401k option. I am an agent, but also have a W2 job. Don't know if the Solo 401k is still an option for me.

SDIRA LLC Investment with a Partner?

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