Using a SDIRA to get into mobile home investing

Hello Sandy. Yes, I attempted to do this with a SDIRA last year.

I was informed by my custodian that because mobile homes are 'personal property' I could NOT.

How can you?

A couple ways it can be done. Again, according to my custodian.

1 - Secure a money partner. They lend you money for the project. THEY can loan from THEIR SDIRA because it's a loan.

I did this on one project and it worked fine. Self funded my other projects.

2 - Set up a corporation and an LLC. Have the corporation lend to the LLC for the project. Again a loan.

This is according to my custodian. Obviously, please verify all this before proceeding.

Good luck and have fun!

Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

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Sandy Uhlmann You could invest in notes with little money from an SDIRA by either joint venturing or buying partials.

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Sandy Uhlmann

OP

Investor · Jefferson City, MO · Member since 2013 · 309 posts · 100 votes

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@Bill Neves

I contacted Equity Trust and it is not problem investing/buying and flipping mobile homes. It is no different than fixing and flipping or fixing and renting homes. You just cannot do the work yourself but you can hire out contractors and direct the work. It is just the logistics in paying for the work that is a slow process as the funds have to be sent from the custodian and this takes time.

@Chris Seveney I do have several performing notes that I have purchased through my SDIRA. Mobile home investing lets me do the two things I love the most: Rehab and lend money and get a good return on the investment. It seems to me like mobile homes have a lower price of entry than do most notes. $10,000 or less will get me a good start whereas it is hard to find a good performing note for that price and the price of a servicer takes a good bite out of any profit you get. Non performing notes have been a bit of a headache and they have servicing fees, attorney fees ect...

Brian EastmanPro Member

Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes

9y

Investing in mobile homes is not really any different than investing in stick-built homes when it comes to the practical side of IRA mechanics. This is something that is allowable for IRA funds, with the same caveats against self-dealing as any other asset class.

The issue is one of execution, and working with a custodian is not optimal for any kind of investing where there are frequent and/or time sensitive transactions. The paperwork, delay and processing costs associated with the 3rd party custodian will kill your deal.

Most investors wishing to invest as you are in flipping style transactions will look at a checkbook IRA LLC or Solo 401k if they qualify. These plans put you in control of the funds in a bank account of your choosing. This makes it much more efficient to deal with complex investments.

And, if you work with a quality firm, you will actually get meaningful guidance as to the rules, potential tax implications of business activities such as flipping, etc. A custodian will not provide meaningful advise when it comes to tax matters, though you may get whatever the customer service person on the phone thinks will be helpful to you (accurate or not).

3 Reply

Bill Neves

Flipper/Rehabber · Vancouver, WA · Member since 2013 · 328 posts · 252 votes

9y

Firing my custodian! :-)

Rachel H.

San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes

9y

I've known others to use their Roth IRA in this niche but usually they don't do any work either. The mobile homes are sold "as-is" or a contractor is brought in but usually the funds are only used for the purchase of the home. Sounds like @Bill Neves gave you a few good options. Good luck!

Steve Racicot

Investor · Manchester, NH · Member since 2016 · 164 posts · 83 votes

9y

@Sandy Uhlmann What is your Exit Strategy? From my understanding, Most mobile homes do NOT appreciate in value over time, so a buy and hold strategy is best. Simply collect the rent every month. and be done with it. However, what about in a few years, what happens if the mobile home needs so much repair, that it is better to replace?

I am in the same boat as you, but these are some of the questions I have... Hoping someone can answer them.

Steve

Sandy Uhlmann

OP

Investor · Jefferson City, MO · Member since 2013 · 309 posts · 100 votes

9y

@Steve Racicot I would like to owner finance them. I don't want the landlord hassles. I know that there are Dodd Frank issues with this but if I end up doing more than the limit, I guess I will have to find and RMLO to underwrite. I am not so naive to know that even these owner finance deals have their own hassles-default, skipping out in the middle of the night, trashing the home. I just hope that between the down payment and the payments received there is not a ton of additional expense in order to placing the next tenant buyer in the home. I think the key is in the screening of the clients.

I guess the ideal thing to do is to buy cheap, sell as "handyman special" to someone who is going to fix it up and live in the home, get $1000-3000 down and charge a monthly payment + lot rent that is less than the average family can pay for an apartment in the area. I understand the GOAL is for the down payment and the monthly payment to make your money back in 10-12 months. Most of the owner financing is for 5 years, more or less depending on the quality of the trailer to begin with. Obviously, the amount you can charge above the lot rent depends on what area you live in. Where I live, lot rents are under $200 so If I charged $500 (including the lot rent in the $500) that would be $300/month so $3,600 income in a year plus whatever I got as a down payment. After that, it is all profit. I can find decent mobile homes for under $6000 where I live.

My problem will be that I actually LIKE to do (have someone else do) some rehab but I know if I want to make a profit, I am really going to have to control my rehab impulses and go for the essential items that give the most bang for the buck. I am sure that I will pay for my education as I go with the mistakes that I will make along the way!

https://www.biggerpockets.com/blogs/3441/51027-nonrecourse-loan-debt-for-self-directed-solo-401k-investment

Mark Nolan

Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes

9y

@Sandy Uhlmann

If you are self-employed, you may be best off investing in mobile homes via a solo 401k if you plan to use debt financing as UDFI does not apply to 401k plans but does to IRAs. For a list of lenders see the following.

Following are the similarities and differences between the solo 401k and the self-directed IRA.

The Self-Directed IRA and Solo 401k Similarities

Both were created by congress for individuals to save for retirement;
Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
Both allow for Roth contributions;
Both are subject to prohibited transaction rules;
Both are subject to federal taxes at time of distribution;
Both allow for checkbook control for placing alternative investments;
Both may be invested in annuities;
Both are protected from creditors;
Both allow for nondeductible contributions;
Both are prohibited from investing in assets listed under I.R.C. 408(m); and
Neither may be invested in your own business.

The Self-Directed IRA and Solo 401k Differences

In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
To open a self-directed IRA, self-employment income is not required;
In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
The solo 401k allows for checkbook control from the onset;
The solo 401k allows for personal loan known as a solo 401k loan;
It is prohibited to borrow from your IRA;
The Solo 401k may be invested in life insurance;
The self-directed IRA may not be invested in life insurance;
The solo 401k allow for high contribution amounts (for 2016, the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
The solo 401k business owner can serve as trustee of the solo 401k;
The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
Pre-tax IRA contributions on reported on line 32 of Form 1040;
Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
Roth solo 401k funds are subject to RMDs;
A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
Roth IRA funds are not subject to requirement minimum distributions (RMDs);
The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
At termination, the self-directed IRA is only required to file a form 1099-R.

2 Reply

Keller, TX · Member since 2017 · 57 posts · 18 votes

9y

Brian Eastman I have been trying to educate myself on this and get more confused. I have an IRA that was rolled from a 401k from a previous employer. I want to learn how to move this IRA into one that I can pull money out and invest. My intent is to purchase MH's and owner finance over 5 years. Where do I go to educate myself on options for using my IRA besides just pulling it out and paying penalties plus tax?

Brian EastmanPro Member

Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes

9y

You need to research what is referred to as a self-directed IRA. This is essentially an IRA like any other as far as tax purposes, simply configured differently so that it can be invested into assets beyond just stocks such as real estate, private mortgages, etc.

There is much information here on BP on the topic, and many of us who provide such plans.

Dmitriy Fomichenko

Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes

9y

Keep in mind that if you wish to use your IRA funds to acquire an investment without pulling the funds out and paying penalties and taxes you need to use SD IRA as Brian suggested above, but all of the income and gains from this investment would belong to an IRA, you personally can not use any of that until retirement.

Keller, TX · Member since 2017 · 57 posts · 18 votes

9y

Brian Eastman Dmitriy Fomichenko Thank you both. I didn't know what the SD IRA was called, so now I'll be able to research this. Is this normally an easy transition and quick (as in a few days) or is it time consuming and lots of paperwork? Or will the research answer this? Again, thank you

Brian EastmanPro Member

Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes

9y

The process will depend on the provider and type of plan you select, which will vary based on your investment goals, capital available, etc.

There are self-directed IRA custodians that hold accounts and process the transactions. It typically takes about 2 weeks to setup and fund such an account by rollover from another IRA. When you go to transact, you submit paperwork, they take a few days to process and fund the transaction.

There are also programs that provide you with "checkbook control" via an IRA LLC or Sol0 401(k). These plans also take about 2-3 weeks to initially setup and fund. Once in place, you then have control over the bank account under the umbrella of the plan and can transact without paperwork, processing delays or per-transaction fees.

Steve Racicot

Investor · Manchester, NH · Member since 2016 · 164 posts · 83 votes

9y

@Carrie Cavins I Use Kingdom Trust as my Custodian. And used the services of Checkbook IRA to set everything up for me. Everything was done in less than a month and went very smooth.

Avi Garg

Rental Property Investor · Concord, CA · Member since 2016 · 499 posts · 219 votes

9y

Sandy Uhlmann for the logistics of paying contractors, you can have a friend pay them and then direct equity trust to pay your friend. I did it with my IRA at equity trust

Keller, TX · Member since 2017 · 57 posts · 18 votes

9y

Brian Eastman is it worth it if I will be doing one transaction, less than $40k for my potential purchase? There are several terms you mentioned in your response that flooded my mind with questions and leads me to this.. Do I ask the questions on the post because there are a lot of newbies that may have the same questions, and/or take advantage of you being a PRO and as such, the privilege of emailing you my clarifying questions as to not have this discussion go in the wrong direction?

Brian EastmanPro Member

Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes

9y

A web forum is not the best place for interactive education. Plan provider websites will be helpful, as will getting on the phone and speaking with providers.

If the return on investment for your $40K will be better in mobile home investing than in conventional financial products, then yes, this can make sense.

Michael Lee

Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes

9y

is not the day to give complicated sals pitch and are not allowed here. At best it's informational and there are no questions, Carrie Cavins there are several ways to get the information you desire. It probably should be a company that has been doing this for a while and a company referred to you from a company that has been doing this for several years. One of the biggest things about SD-IRA only is the required non-recourse loans that typically has a bigger down payment. I have been looking at these for the last several month and have not started doing this. There is so many benefits that those funds do not allow them to yourself or any family related people. I also heard these funds cannot be held or taken by the IRS group, even in a personal foreclosure. understand that the indivual you are talking to just wants your money.

Good luck to you!

Sandy Uhlmann

OP

Investor · Jefferson City, MO · Member since 2013 · 309 posts · 100 votes

9y

@Avi Garg Thanks for the great idea! I was beginning to wonder if I would have to have someone act in this capacity. Would be great if the big box stores allowed you to have charge cards in the name of your IRA so you could put it on a credit card and then have the SDIRA pay it off. I wish I had started with a checkbook IRA but since I didn't, I think I am out of luck. It is expensive (I believe) transferring assets from one IRA to another.

Dmitriy Fomichenko

Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes

9y

you can enhance your self-directed IRA into Checkbook IRA. To do so you will need to add a special purpose, single member LLC which will be owned by your IRA. You instruct your custodian to buy units of the LLC and funds are transferred to the LLC's checking account. You can also transfer assets to the LLC if you have any.

You can't have a credit card with IRA (or IRA LLC). And the issues is not with the companies who offer the self-directed IRA. The reason for that is that most credit card companies will required personal guarantee from you but since you are considered to be a "Disqualified Person" to your IRA you can't provide personal guarantee. In other words this would be a violation of the IRS rules.

Keller, TX · Member since 2017 · 57 posts · 18 votes

9y

Brian Eastman I agree. Thank you