Strategies for using a Self-Directed IRA

[Todd Magin]

 

The way I see it, there are basically two ways to use an IRA to finance investments:

1) Have the IRA "buy" the property and ALL income and expenses are paid to/from the IRA. If financing is used in the purchase of the property, the IRA is subject to pay UBIT taxes. It really bothers me that my IRA would have to pay taxes, but perhaps the benefits outweigh this one negative.

2) Have the IRA be a private money lender and finance OTHER people's deals. You can't finance your own deals through your IRA because it would be considered a "prohibited transaction"

a) Form an investor group which lends each other money from their IRAs. If Sally lends Joe money, Joe lends Roger money, and Roger lends Sally money there are no "prohibited transactions". The investor group could either mutually agree on standard loan terms that all abide by or shop for the best terms within the group for each deal.

This is undoubtedly a simplified view on a complicated topic, but am I at least in the ballpark?  Are there some other strategies that I am overlooking?