I am new to RE investing and Self directed IRAs. I’m finding it difficult to work out a RE venture with my mentor using my IRA and could use some guidance.
In consideration for the mentoring, I am willing to finance 100% of SFH purchase and rehab for 50% profit on resale. My mentor does not want to risk loosing a purchase opportunity by waiting for the earnest money from my IRA custodian. I was told I could structure the deal by a promissory note for the earnest check and a management agreement for the rehab costs once the investment was purchased through my IRA. I’m not sure the promissory note is legal and don’t want the IRS coming down on my IRA. I’ve been looking at other ways to make this deal happen that is 100% financed by my IRA. I ran across a profit participation loan were I could benefit the 50% profit and charge a nominal APR without breaking usury laws. I just cant find particular info on the rules to see if it could work. IE, is it acceptable for me to fund the deal and my mentor manage the projecct for 50% profit. Any suggestions or references would be greatly appreciated.
“Haste makes waste”
I’m uncomfortable with hurry-up deals so I’d recommend you go slow here.
Form an LLC for your SDIRA to own, get all your SDIRA funds transferred into that LLC, then you’re making all the decisions for the LLC.
And on any joint venture deal I recommend you find a careful lawyer to look over your shoulder so as to make sure you’re protected and to help you avoid the flaky deals.
Get legal help
I agree with John that this is not a simple cut and dry formula, so you should get legal advice about what you are doing before proceeding to make sure you are not violating any IRA rules or maybe there’s a better way to “skin the cat,” so to speak.
In terms of funds moving quickly you might consider a “checkbook” IRA, that is, an LLC owned by your IRA where you have complete control of your funds. Again, that is something you will need legal counsel for.