All Forum Posts by: Todd Magin

@Account Closed Thanks for your insightful comments. On point one, to be picky, you won't double your return because you have to service the debt, but perhaps you'll increase your return to 18% instead of 12%. After a bit of further reading, you can also take advantage of depreciation to offset income so in the first few years you are not likely to be paying any UDFI. Bottom line, option 1 (IRA owning property) is not as bad as I once thought.

As for option 2a (investor group providing loans to each other), as long as the investors are not related (parents, siblings, etc) and they are not part of a formal structure which ties the IRAs together (partnership, LLC, S-corp, etc), there would not be a prohibited transaction.

Are there people out there doing this kind of thing or is it just a pigment of my imagination? :)

The way I see it, there are basically two ways to use an IRA to finance investments:

1) Have the IRA "buy" the property and ALL income and expenses are paid to/from the IRA. If financing is used in the purchase of the property, the IRA is subject to pay UBIT taxes. It really bothers me that my IRA would have to pay taxes, but perhaps the benefits outweigh this one negative.

2) Have the IRA be a private money lender and finance OTHER people's deals. You can't finance your own deals through your IRA because it would be considered a "prohibited transaction"

a) Form an investor group which lends each other money from their IRAs. If Sally lends Joe money, Joe lends Roger money, and Roger lends Sally money there are no "prohibited transactions". The investor group could either mutually agree on standard loan terms that all abide by or shop for the best terms within the group for each deal.

This is undoubtedly a simplified view on a complicated topic, but am I at least in the ballpark?  Are there some other strategies that I am overlooking?

Thanks Brett and Russell. I'm still trying to absorb all of the information here on BP, but one of the main reasons I joined was to begin networking, so I would love to attend the meetup group.  When is it?  Is there a link to it here on BP?  

I'm interested in learning the Montgomery County market, narrowing down a focus to a smaller area within that market, and buying a small to mid-size apartment building in the next 12 months.  I look forward to establishing relationships with agents, lenders, property managers, and contractors in order to form a team who I can rely on for guidance along the way.  My strategy is rent and hold and to uncover under performing properties where I can maximize returns on investment and provide fuel for the next deal.