Mixing SDIRAs, Conventional & Financing on Portfolio of Property

Tax, SDIRAs & Cost Segregation
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Mixing SDIRAs, Conventional & Financing on Portfolio of Property

Daniel DietzPro Member
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes

Hello all, 

We are working on a potential deal that could involve up to about 16 units with a value of about 1.25M. There are 3-4 of us interested in partnering on this deal. 3 of us, myself, my brother and father already have a 3 way LLC set up using our SDIRAs. The forth interested party is our uncle. All of us would be able to fund from SDIRAs, Solo401Ks or Cash for our equity stake.

We will be seeking professional advice also as to how to set things up, but thought I would get some input here also. 

My first gut thought is that it would make the most sense to do each property either 'all cash' for the down payment, or else 'all retirement plan funds' for the down payment. 

As we each look at our own goals, tax situation, goals etc.... and it ends up that one of us wants to do more cash vs one of the others wanting to use more retirement funds, would there be some combinations of those that would make more sense than others. 

There is a good chance that we will be able to use seller financing for this deal, and that non-recourse would be an option also if we wanted to use the retirement funds. A couple of possible scenarios, if allowed, might be;

  1. Two brothers, father and uncle all use SDIRA funds invested into 4 way LLC. LLC takes out non recourse loan. Seems to work from what I know.
  2. One brother and father use SDIRA funds, other brother and uncle use cash funds into 4 way LLC (or no LLC if there is an advantage to that). Can the LLC then do non recourse loan or not since disqualified parties are involved in the LLC? I would think this one is 'no go'.
  3. If just the two brothers (who are not disqualified to each-other) and the uncle are involved, and one of them wants to use SDIRA and the others want to use cash, what would the borrowing possibilities be? Since none of these parties are disqualified to  each other, would non recourse lending be allowed using THESE properties as the collateral? 

I hope this makes sense. Hopefully some of the highly knowledgeable pros can chime in on this one :-)

Thanks, Dan Dietz

[email protected]608-524-4899
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  • Mark Nolan
    Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
    10y

    @Daniel Dietz

    Yes to one.

    For two, fathers are disqualified parties but brothers and uncles generally are not deemed disqualified parties, so while it may be deemed aggressive, it is not prohibited on the surface if the father is  not the father of one of the sons mentioned and only IRAs and non-disqualified parties are investing.

    For three, it is similar to two except the father's IRA is removed from the equation, so it is not prohibited on the surface since brothers and uncles are not disqualified parties.

    However, under both 2 and 3 above, the IRS can always challenge both scenarios, and unless you can prove to the IRS that such transactions could have been made without the need of the other parties, they can still deem it prohibited.

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  • Daniel DietzPro Member
    OP
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    10y

    @Mark Nolan,

    Im trying to get this straight in my mind... that is hard at times!

    If we look at number 3 above again, meaning ALL parties that are NOT disqualified to one another, 

    • Ther first partner wants to  use their SDIRA for part of their share along with a non-recourse loan to that SDIRA for the rest of their share. All retirement funds.
    • The second one wants to use Cash for part of their share along with a non-recourse loan from the seller of the property for the rest of their portion.
    • The final partner wants to use use Cash for part of their share with a Conventional Loan for the remainder of their portion.

    Would this scenario work since no one partner is mixing their own retirement funds with their own funds from outside of their retirement accounts and no loans that are not allowed within a retirement account?

    Hope that makes sense.

    Dan Dietz

    PS. I sent you a PM. Let me know if you did not get it please.

    [email protected]608-524-4899
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  • Mark Nolan
    Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
    10y

    @Daniel Dietz

    Feel free to call me to discuss as I have some clarifying questions.

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  • Damian S.
    Real Estate Broker/Investor · Chicago, IL · Member since 2015 · 106 posts · 22 votes
    10y

    I'd also like to add that non all non-recourse loans work for IRAs and Solo401(k)s. Please make sure that the lender specializes in those as any carve out provisions in some non-recourse loans can still put the retirement account on hook for any liabilities.

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