All Forum Posts by: Daniel Dietz

Matt,

Thanks for the quick response.

As to #1)

We will be holding the property in an LLC. Would a private person lend to the IRA, or the LLC? My understanding is that a traditional 'Bank Non Recourse' loan would be to the LLC that hold the property and would therefor be in a position to foreclose if needed in order to secure their equity. Would a private lender do things similarly typically? Would you see any other pluses or minuses to lending to either the IRA or the LLC?

As to #2)

What I envisioned is an individual who would either us a HELOC, or other type of equity loan where they could use the proceeds for whatever they chose. Does that make sense?

Thanks, Dan

Hello,

This is kind of an 'expansion' of another question I posted earlier here.

I was hoping to use Non-Recourse loans to use within my ROTH to achieve 50% leverage. I am finding that the lenders I have contacted are not interested in lending on things that are pre-1940, over/under duplexes (2 story house converted) or under 100K sale price..... which are what I am seeing as the best deals here where I live.

I think I understand the rules where *I* can not (nor any other disqualified person) do any kind of personal guarantee on the 'non IRA' 50% share.

So my question is, what are the other options for that share that is not the IRA share? Some thoughts would be;

1) Me getting a Non-Recourse Loan from a private individual who is NOT a disqualified person. This could be either cash from their SDIRA or their cash on hand.

2) Having a non disqualified person join as a partner who would use a loan of their choosing outside of an IRA to be a 50% stake holder.

3) IF I could find someone that would sell on a Land Contract that would not require a 'personal guarantee', could my SDIRA do say a 50% (or less if possible) down payment and have them carry the remainder on the LC?

Other thoughts?

Thanks, Dan Dietz

Steven,

Are you saying that I can not even do a 'personal guarantee' on the NON IRA 'share' (75% in this case) since it would be on the 'same asset' (property) that the IRA also owns a share of (25%)?

If that is correct, I assume that a 'non disqualified' party could either give me a 'non-recourse' personal loan on that 75% share, or join as a 'partner' for the 75% share and do any kind of loan they would chose since not in an IRA?

Sorry for all the questions, just want to get off on the right foot!

Thanks, Dan Dietz

Aaron,

It sounds like you are saying even though we have not been directly involved yet. (the third party could keep the property or sell to someone else at this point, but I dont expect that) that this is still self dealing? If so, would that change if the third party actually closed the deal, took possession, and then sold to us at another closing?

Thanks, Dan Dietz

Steven,

Just to make sure I am understanding things properly..............

You are saying that even if the 'recourse loan' would be OUTSIDE of the SDIRA side of things, that because it is on the same property as the SDIRA, it would still be a 'prohibited transaction', since it would 'indirectly' potential affect the SDIRA side also?

IF, and this is a big if, I could secure a private non-recourse loan for the NON SDIRA side of things, (I am assuming a private individual that would be willing to do this, not a commercial bank) then this idea might work? If yes, does one non-recourse loan have the 'first position' over the other, or would they each have the right to the percentage of the LLC makeup? In the case I am using 30-70 ratio?

Hope that makes sense.

Thanks, Dan Dietz

As a twist on this, I have been wondering (and will be talking to my IRA?LLC Lawyer next week to clarify) about this scenario;

I want to partner with my SDIRA on a rental property. Lets say the SDIRA would go in for 30% with 15% coming from existing SDIRA funds, and 15% from a non-recourse loan within the SDIRA. I, personally as a 'partner', would go in for the other 70%. This 70 might be a mix of cash and loan, personal guarantee, or loan made on the equity I have in other investments.

Would this work as far as the mixing of SDIRA and 'personal funds'? I do realize that all expenses and income would need to be split in the same 30-70 ratio.

Thanks, Dan Dietz

Steven,

I will inquire about a buyout agreement. In this particular case, it sounds like it WOULD be an issue, since the 1/3 partner that might want out is my father, and the other two partners are me and my brother.

So my understanding is that dad selling to either of us would be an issue, but my brother or I selling to eachother might not be. This is one of the things we are getting clarified.

Thanks, Dan DIetz

We are in a similar situation right now and am hoping we are working around it right. What we did, since we knew about the 'no self dealing rule', AND not yet having our IRA's rolled into the SDIRAs, OR having the LLC set up, and we were wanting to 'buy' this property at an auction is this;

We had a non-disqualified third party do the bidding, sign the offer, and provide the earnest money check. The realtor knew our plan and approved. At the closing, we will get the property 'assigned' to use and all paperwork will be done in the name of the LLC that is by that point funded with the newly rolled SDIRA's (3 in our case).

Note, all 3 of us have a LONG and excellent business history in our small town and with this realtor, which is probably a large part of the reason they were not suspicious of this working.

Dan Dietz

Kaaren,

Thanks for the referral. I have contacted their office and am in the process of forming my/our LLC/IRA. For the benefit of others, I did get a preliminary answer to that question, and here is what I know so far, and the partner I talked to there is double checking these issues for me.

The percentage ownership can NOT change. In our case, it may be partially because we are disqualified parties, but I get the impression that rule would almost always apply. This means we would need to liquidate the LLC and the properties in it, and form a new LLC for the new ownership percentages.

Any one of the owners could sell their WHOLE 'share' (in our case 1/3) to a non current, non dis-qualified party though.

It does NOT sound like it is an issue if one of the partners leaves their share to one or more of the other partners (this is one of the main things being researched) just as you could leave ANY IRA to whomever you chose.

Thanks, Dan Dietz

Matt & Steven,

Thanks for the replies!

I think I am starting to comprehend it all a bit better. After talking to my normal tax man, who admittedly does not work with SDIRAs, but IS eager to have a reason to brush up on them (and he has a lot of rentals himself, outside of an IRA), he/I have a couple questions.

1) I assume that since it is alright to partner '50-50' with your own SDIRA, it would also be likely that it would be OK to do say 25% SDIRA, 75% Non-IRA (borrowed outside of the SDIRA, by me individually). Then split income and expense 25-75 etc....?

The reason is simply to more highly leverage things for a higher return.

2)Here is where the confusing part comes in for me.... for the 75% 'non-SDIRA' money that I would personally be doing, I am assuming I can NOT use the 25% SDIRA share as collateral as that would be 'self -dealing' or whatever that terms is? If so, can I, on just the portion NOT in the SDIRA, give a 'personal guarantee' for that part? I would think that would NOT be 'self dealing' since it is NOT affecting the SDIRA part in any way that I can see.

Thoughts please!

Thanks, Dan Dietz