How to partner with your SD IRA to construct a deal?

[YiBing T.]

Hello BP,

I recently came across a deal. The property is in the suburb area of Baltimore County, Maryland. The deal requires all cash and since we don't have that much cash on hand, I am thinking of partnering my LLC, and self-directed IRA accounts from my mother, wife and my old 401k. I heard there are a lot of restrictions but I am interested in trying it out for the first time. Here is the breakdown of the deal, would you provide your opinion on this?

• Partner 1: my own Self Direct IRA LLC (out of state LLC, somewhere low cost)
• Partner 2: my wife's Self Direct IRA LLC (out of state LLC, somewhere low cost)
• Partner 3: my mother's Self Direct IRA LLC (out of state LLC, somewhere low cost)
• Partner 4: an LLC that is owned by both my wife and me.

Partner 1-4 contribute funds to a Maryland LLC to title the property.

Has anyone done deals like this before? Would you mind sharing how you construct a real estate deal? Would my planning violate any IRS rules for self-directed IRA? The only thing I am not sure about is my LLC is owned by me and my wife.

Thank you very much. 

Yibing

[Phil G.]

Personally, I would steer clear of this type of transaction. While disqualified parties can invest together if done properly, the real risk you run is having the IRS rule the transaction as self-dealing. Since you don't have the capital to do the deal without the IRAs to supplement your capital, your IRA is enabling you to make the transaction and personally gaining by the IRA's involvement in the transaction.