Reciprocal loans by SDIRAs as work-around non-recourse loan rule

[Bill Henley]

I have a traditional IRA, a leftover from a long-ago job, with about $50K in it. I would like to convert this IRA to a Self-Directed IRA, in order to use the capital to add to a program of rental real estate purchases my wife started about two years ago. I have read a few BP threads and a few web sites on SDIRAs, as well as Mat Sorensen's 38-page pdf, "Self-Directed IRAs and Real Estate." In other words, I'm a newb. What I'm getting is that, to use an SDIRA to buy a building with borrowed money, the tax code requires the loan to be a non-recourse loan. What I'm also getting is that a lender -- if you can find one -- will require a down payment of 35-40%. A loan with a 40% down payment makes your SDIRA dollars one-half as powerful as a loan with a 20% down payment.

To avoid the non-recourse requirement, the thought occurred to me, that a pair of SDIRA owners -- Owner A and Owner B -- could make a reciprocal agreement: that Owner A could cause his/her SDIRA to make a loan to Owner B as an individual, with Owner B likewise causing his/her SDIRA to make a loan toOwner A, in the same amount, with the same rate and the same monthly payments. The assets of SDIRA A now include Owner B's IOU in favor of SDIRA A, and the assets of SDIRA B now include Owner A's IOU in favor of SDIRA B. However, the capital itself has now escaped the tax code's IRA rules, because the capital is now owned by individuals. Owner A can now use this money as the down payment on a building titled to Owner A, not to his/her SDIRA, and vice versa for Owner B.

What do the SDIRA experts think of this idea?