Funding LLCs vs Properties/Deals

[Nghi Le]

I have a partner who invests with me (putting in both money and effort), but her money comes from her (self-directed) IRA. To fund deals, we were thinking about having the IRA hold a note against the LLC (unsecured) as opposed to the property. It seems to require a lot of extra effort and paperwork for hard money lenders to have a 2nd lien-holder on the property, whether it be an IRA or a private investor's cash, so we thought this way would just bypass that and remove some headaches. Plus, we'd only have to do a loan transaction once a year (or however long the balloon is) vs every deal.

I'm just wondering... are there any legal or tax downsides to this?

Side note:  This partner and I have been close friends since middle school, so we basically have complete trust in each other.  We just really want to invest without legal headaches.

[Dmitriy Fomichenko]

@Nghi Le I can't provide you with the legal advice but I do have a question/comment.

You are saying that your partner used her IRA and puts both money and effort. Perhaps I'm misunderstanding what you are saying, what do you mean by "effort"? Please note that when it comes to using retirement account doing any work personally would be considered illegal contribution to the retirement plan.