All Forum Posts by: Loren Whitney

@Mike Mitchell Can you give us some examples of what you're describing? 

Welcome to BP Jabari! 

Every SDIRA provider is different when it comes to documentation requirements. We don't have those requirements. It more common to require common LLC documentation like operating agreements, EIN number, articles of incorporation, etc.

If your friend doesn't want to switch IRA providers, perhaps you can look at having him partner with the LLC instead of into the LLC. Just a thought. If there is leverage that could make things complicated.

I'm happy to answer any additional questions.

There are plenty of publically traded REITS for you to research. Any self-directed brokerage house will let you get into these.

If you find a private REIT or real estate investment offering that you'd like to pursue, you'll need to go with an SDIRA provider that allows alternative assets. Jeff's comparison was pretty much spot on.

Do you mean 401(k) @Ken Cooper ? If it is a 401(k), I doubt they'll let you borrow against the plan since you're no longer with the employer.

There are rarely going to be dollar minimums associated with IRA accounts.

Are there any investments you can picture going after with only $15k?

One important consideration will be factoring in the IRA custodial fees to your overall rate or return. What will that do to your bottom line? If you're still pleased with the results, I think you have your answer.

Feel free to ask additional questions. I'll PM you to connect. 

@Sam Leon 

IRC 4975 and specificially, sub-section 'disqualified persons', will apply (and should be reviewed) each and every time a new economic transaction takes place.

Upon the origination of an entity, no one owns equity in the entity. Therefore, if all transactions are processed at the same time, the initial funding is not prohibited. However, now if you (or combination of disqualified persons) owns 50% or more, future transactions will then violate the rules.

In the example you gave, the initial funding of an entity would be acceptable. The issue would be making subsequent investments. Therefore, fund your investment entity with more than enough capital to see the life of the investment through thick and thin. You might also want to look into neutral management as well.

If your investments are simplistic in nature, you may not necessary want to go as far as creating additional layers of entities when structuring the investment. The SDIRA/401k can invest directly.

Feel free to call me direct if you'd like to share a deeper discussion. Thanks!

This is an age old question and a good one.

The great thing about using a retirement plan is that cost basis generally doesn't matter. You can buy a $100,000 property today for cash and sell it tomorrow or years later for a gain. There is no need to track depreciation and file for 1031 exchange. That is how things work when you pay CASH.

However, let's say you decide to finance your IRA purchase and put 50% down on a $100,000 property with a non-recourse loan. If you sell the property at a later date for a gain and still owe on that property, you will be subject to a tax called UBIT. I won't go into the calculations in this post but your debt financed profits are subject to UBIT and paid by the IRA. In this situation, your expenses and depreciation can be used to offset the UBIT tax. Furthermore, if you'd like to defer that UBIT tax, you can file for 1031 inside the IRA. In this example, you're simply deferring the tax that the IRA would have otherwise had to pay.

Feel free to follow-up with additional questions. I'll write you to connect as well.

Best of Luck!

@Sam Leon 

Be careful about your initial percentages of ownership because the example stated above would restrict you from making any subsequent investments into the LLC.

In this example:

YOU - 200K

BROTHER - 100K

FATHER - 100K

The "YOU" is a 50% owner of the LLC. Once you hit the 50% or more mark, the entity becomes disqualified and subsequent investments will be prohibited.

To solve this issue, be sure that all IRA investors make initial investments of less than 50% and maintain that exact percentage, like @Daniel Dietz stated above, through the life of the structure.

Also be aware the multi-level LLCs will be subject to the same rules.

Thanks for the plug @Justin Cooper

Welcome to BP @Kaleb M. We're practically neighbors in the Denver community.

I notice that you want to owner occupy the property to get started. If that's the case then you won't be able to use an SDIRA for that specific investment. When you use IRA funds for real estate investments, they must be arms length from you. Simply put, you can't live in a property that's co-mingled with investment funds from your IRA. That being said, the 401k rollover and loan option may work out better for you.

Feel free to keep asking questions!

I know we've already had a little back and forth in private messages but I wanted to add a public statement as well.

Given what you are looking for, a couple of items come to mind. First, with regard to avoiding future problems with an IRA provider, you might ask if the custodial entity is experienced handling IRAs with alternative assets in them as well as the cash that flows in and out of that type of account. Some custodians have more extensive experience than others, and because the custodian is an entity that deals with the integrity of the account, it makes sense to look for one who is good at it. You can even ask questions like "how often are cash balances reconciled?" This might sound like common sense but what I'm really trying to say is don't be afraid of asking sophisticated questions when performing future due diligence on custodians.

Second, your thought about simplicity makes a lot of sense. Some providers have features that are designed to make it easier for IRA real estate investors: features like free online bill pay or the ability for your IRA's renters to pay their rent electronically. If you can find a provider that makes it easy enough for you, it may influence your decision about whether you want checkbook control. The criteria for whether to choose checkbook control is often a mix of convenience, IRA provider fees, IRA provider educational support, and risk tolerance.  To some extent, the decision also has to do with what assets your account is into.  It is surprising that some account holders don’t take into account the specifics of their investments when choosing a provider or choosing whether to use checkbook control.