Investing with someone else's IRA money.

[Nikita Khambe]

I am a Realtor in Texas and I have a client who is interested in flipping properties but wants me to buy, flip and sell properties and give him a return. The client has agreed to make down payments on all the projects with his IRA money and the balance will be leveraged using a mortgage that I will be borrowing as an LLC. Few questions I have are:

1. Do I need a side contract with the client? Terms?

2. What share of profits should I keep so that I can pay taxes on the income made?

3. Do I need a separate LLC to invest/work with IRA investors?

Am I missing anything important? 

Thank you all for your answers and time.

[Steve Vaughan]

Sounds like a mess waiting to happen the way it's (kind of) outlined.

I have private lenders. The rental rate of their money is in the form of interest. Interest earned by an IRA as a purpose is excellent. I will only lend from my IRA to keep things clean and avoid the high taxes inherent in the earned interest world.

I may do something like this: Using them as a lender only, not equity partner, I would pay a minimum amount of interest as a % borrowed, but additional interest if a certain profit is obtained.  Either way, it's still all interest.  A bonus of sorts, but paid as interest.  

You can't kind of lend and kind of be an equity partner all at the same time, especially inside an IRA. A mess. As a lender, they will have a lien or trust deed on the property but not an ownership interest. Seems to solve the problem about not signing things. Otherwise, I'd pass. If it's just the money you need, save it up or get it elsewhere @Nikita Khambe.  This client may not be worth the headaches at all.