Private loan from SDIRA for Construction of a Commercial Building

[Joel Adams]

I own a bare parcel of commercial property in Montana that is unencumbered. I have a buyer that would like to purchase the property on contract and build a commercial building upon it. Upon completion of the building, we would convert the land contract into a private mortgage. I am also interested in providing the buyer a separate private loan from my SDIRA for construction of the building. I have two questions:

1) It is clear to me that the land contract cannot be through my SDIRA - however, is it legitimate to provide a separate building loan from my SDIRA, assuming the land being purchased through the land contract is not used as security?

2) If the buyer defaults on the building loan prior to completion, the building materials and construction completed would belong to the SDIRA. Would that be considered potential for dealing and put the SDIRA at risk of being disqualified?

I appreciate any thoughts that anyone can share on this.

[Chris Seveney]

@Joel Adams

Let’s

Play this out

You own the land and have a land contract to a borrower.

Your Ira gives borrower a construction loan to build. This loan cannot be secured against the property since they don’t own the property - it’s unsecured loan.

If they default you cannot use the property as recourse - if you do then you allowed your ira to secure against an asset you own which to me is self dealing

If they defaulted you would lose all your ira funds would seem to be only way to allow this to work. Ie. Unsecured loan to that person.