Rental Property Investor · Apopka, FL · Member since 2013 · 155 posts · 62 votes
Questions about partnering with your own SDIRA...let's say 50% inside SDIRA and 50% outside SDIRA. Let's also say together we purchase a multifamily @ $1,000,000 I understand the prohibited parties issue.
1) If we (myself and the SDIRA) were going to put 20% down...does that have to be in equal amounts meaning 10% from me and 10% from SDIRA and everything is split 50 / 50 or can you still have normal deal partnership flexibility...so something like the SDIRA puts in the entire 20%, owns 50% of the property but gets a "preferred return", etc.
2) Perhaps the bigger question is financing, I know there is SDIRA financing that is non recourse but that is typically for 50% LTC. Is there a way -- as in this case, where I can get a mortgage for the 80% in my own name and the non recourse part for the SDIRA is that I am personally on the hook for the funds and not the IRA hence non-recourse
You absolutely can not get a mortgage in your name if your IRA is part owner of the property. It is possible to have the partnership structured with your IRA, the process can be cumbersome so it is crucial that you work with qualified and experienced professional who can assist you with proper structure. The contribution must equal ownership split, in other words if your IRA is 50% partner - it must contribute 50% of the cash required for the deal. While it is possible to do the partnership with your IRA there is a likelihood that such transaction can lead to prohibited transaction, thus disqualifying your IRA. Generally I would recommend to stay away from such transaction, there are many investment opportunities available for your IRA to invest on it's own, that is what you should consider.
You absolutely can not get a mortgage in your name if your IRA is part owner of the property. It is possible to have the partnership structured with your IRA, the process can be cumbersome so it is crucial that you work with qualified and experienced professional who can assist you with proper structure. The contribution must equal ownership split, in other words if your IRA is 50% partner - it must contribute 50% of the cash required for the deal. While it is possible to do the partnership with your IRA there is a likelihood that such transaction can lead to prohibited transaction, thus disqualifying your IRA. Generally I would recommend to stay away from such transaction, there are many investment opportunities available for your IRA to invest on it's own, that is what you should consider.
Great answer from @Dmitriy Fomichenko —about half the clients who partner with their IRAs wish they didn’t. Mistaken ideas, limited future options, maticulous bookkeeping required, changing circumstances, etc are reasons clients are not happy with the decision to partner with their Ira. Others it works out and many of them have professionals helping them.
Hello and welcome to this site Bernie! I just read a book that was about buying and selling apartment buildings. It taught me many things and one of them was about Partnerships. He suggested one called Tenants In Common where you could keep control at any percentage of ownership you had. Each Partner could contribute a different percentage of the total and could be treated differently. I've also have done a little learning about SD Accounts too.
I think all of what you said is true but you may have to buy it in your own name them transfer to the SD-IRA account name but you must understand that any profit stays in the tax-deferred account to be income tax free and not penalized. I agree with Dmitriy with what he said to be cautious and use someone that knows those rules. I hope something here helps you.
Hello Demitriy! I appreciate your warning to me. Is there any way to properly make that transfer without having to get your original loan through you personally and then transfer it to a SD-IRA or to pay a lower down payment with a non-recourse loan? Best wishes!