SDIRA + LLC partnership tax benefits

[Trever Good]

Good morning BP, I’ve poked around the forums for a couple days trying to find a specific answer to this, and while I have found answers to parts of my question I’d like to see how they all fit together for my circumstance.

Say that I use my SDIRA to supply the down payment on a five unit property. The seller has agreed to carry the note on a 10 year term. The building itself is way under market with its rental rates. It needs some light cosmetic work to improve the overall appearance, but otherwise it is in pretty solid shape. The seller is an older gentleman that has managed the building for the past 20+ years and is ready to retire.

My original thought was to use my SDIRA money as a down payment, have the seller carry the note for 10 years, but when the rent comes back up to market, look for a commercial refi through my sole owner LLC (different industry, 20+ year track record) and pay the seller off completely. Buy & hold.

Here are some dummy numbers:

Sale price - 100k

Down payment from SDIRA - 20k

Rehab costs come from LLC - 10k

ARV with current market rental rates - 200k

So seller carries 80k note, SDIRA has 20k down, LLC has 10k rehab in.

1. Is it as simple as LLC obtaining commercial refi after seasoning period?

2. If so, how is the SDIRA/LLC partnership structured?

3. Can the LLC "buy out" SDIRA after refi or is LLC a disqualified party?

4. Who receives the mortgage interest expense tax benefit?

5. What am I missing?

Thanks,

Trev

[Dmitriy Fomichenko]

@Trever Good,

Whenever you bring disqualified person into the picture - you are asking for trouble. Read this discussion:

https://www.biggerpockets.com/forums/51/topics/527...

It talks about 401k but the concept is the same. You will see someone arguing that it is OK to partner with disqualified person, but keep reading to see why you don't want to do that. Ask yourself - are you willing to take unnecessary risk or would rather find a way to make it work some other way.