Providing a Building Loan to an Unrelated Party from a SDIRA

[Joel Adams]

I originally posted this in the Lending forum, but after reviewing, I believe it is more appropriate in this space.

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.

[Michael Plaks]

@Joel Adams

I will tag people who are more knowledgeable in this area than myself:  @Dmitriy Fomichenko @Brian Eastman and @Bernard Reisz.

And I hope they will confirm my opinion. Which is: such a loan from your SDIRA will indirectly benefit you personally as an owner of the land. Making it a "prohibited transaction." Verdict: can't do it.