All Forum Posts by: Eric Grunfeld

The fact is most small landlords have terrible records. If you're looking at assets of say 25 units or less, this will simply be par for the course.

@Eric Grunfeld, depends on your risk tolerance. What if some of the tenants have not been paying over the past several months? That'll be a nightmare to deal with. 

Can the seller potentially provide a bank statement to show recent rental deposits? Mom and pap deals can be lucrative and hidden with value, but you still need to take precautionary measures and perform your due diligence. 

@Eric Grunfeld

What financials has the seller provided (that you are basing your offer on)?

@Eric Grunfeld,

IRA can be part of a joint venture.

If financing is used - a non-recourse lenders would not be a "partner" in the deal, they are simply the lender, your IRA would be the sole owner.

Quote from @Eric Grunfeld:

Thank you everybody.

Can one then borrow from the SDIRA personally and then agree to pay back the interest and principal over a certain period of time? (without getting hit with a tax liability?)

Eric, if your question is related to borrowing in order to buy an investment property in your IRA - that is possible. BUT you are not borrowing personally, IRA is the buyer of the property, and IRA is the borrower. You personally are not part of the transaction. 

Quote from @Eric Grunfeld:

Good Evening Everybody,

Does anybody know what are the tax implications if you are making a down payment from your SDIRA on a property that is partially financed with debt?

For example the loan on the property is issued at a 70% LTV (and you as the investor pay the 30%). Are there any tax issues related to this? Does the IRS view this as a distribution and therefore the investor incurs a tax liability?

Also can one still obtain the tax benefits if your deal is structured this way (ex. able to obtain depreciation and interest expense write-offs?)

I know that this question is geared more towards a CPA  but I must not be the first person to be going through this kind of matter. 

Thank you everyone and look forward to your thoughts.

All the best,

Eric 

If this is something you want to do, it CAN be done. If the IRA has the down payment funds, then buy the property in the name of the IRA. There are rules associated with this though.

The titling, loan, etc must all be done in the name of the IRA.

The loan must be non-recourse - that is, you cannot use your own credit history to guarantee the loan.  Many local banks do these types of loans.

All rental income must go into the IRA account and all expenses must be paid from the IRA account. NO COMINGLING. If you pull funds from the IRA, it is counted as a retirement plan withdrawal subject to all the normal rules associated with it.

Your IRA must file a 990T tax return each year. If there are profits, then the tax is paid, but you can use depreciation and all other normal rental expenses to bring the profits back down to $0 or negative as normal.

Later on, as you reach retirement age/beginning at age 59 1/2, you can distribute ownership percentage to yourself (if you want) so that some of the cash flow comes to you personally while the other percentage stays in the IRA.

I've got several clients that own real estate in their IRAs and I myself own real estate in my solo401K plan.  I really like it as a diversification plan within my retirement funds.  YMMV

@Eric Grunfeld,

If you buying this property personally - you will not be able to use IRA funds for a down payment.

If you have a self-directed IRA and wish to buy this property in your IRA - that would be possible. It is also possible to finance this purchase, but the loan must be non-recourse (IRS rules prohibit personal guarantee). Typically non-recourse lenders will require 30-40% down. You won't be able to claim any tax benefits since you don't own the property (IRA is a separate legal entity). 

Portion of the income from leveraged real estate in an IRA will be subject to Unrelated Business Income Tax, self-directed Solo 401k on the other hand is exempt from UBIT on leveraged real estate, so this would be a better option if you are eligible.