Roth IRA's for rehabs? - Posted by Ron (MD)

Real Estate Investing Retail
#1

Posted by Geoffrey Faivre-Malloy on December 14, 2000 at 09:48:54:

I can understand how you feel about this. However, I also think that EVERYTHING that is said on this board should be confirmed whether the person who said it is an expert or not!

I view what’s said here as a starting point. It’s up to the person reading to get more information on the subject and if that requires speaking to a lawyer who can give legal advice then so be it.

Now, as I stated in my original post - I am not an expert on this. Translation - this may be wrong but this is what I have heard. I even followed it up with references to places where you can get more information (midoh.com).

Having said all of this - I am NOT trying to be confrontational and hope I’m not coming across that way. The issue of self-dealing is one I hadn’t heard of. Some people are obviously doing REI through their IRAs so there must be some way around it.

I’ll shut up on the subject now (honest) and go back to reading…Thanks for your thoughts on the matter JP. :wink:

G-Man

#2

Roth IRA’s for rehabs? - Posted by Ron (MD)

Posted by Ron (MD) on December 13, 2000 at 06:31:53:

I’d love to do some of my rehabs out of a Roth IRA. The catch is, I can only put $2,000 into a Roth, which doesn’t begin to pay for a rehab deal. The IRA can borrow money, but only if it’s a non-recourse loan (which I assume will be very hard to get).

Rules prohibit self-dealing, so I cannot lend money to my IRA, nor can my company, my parents or children. I’m trying to find a way to do this. Right now, the best I can do is to lend $50,000 to a friend’s investment company and then have my IRA borrow $50,000 from the same company (or one of his other companies). I’m not crazy about this because it may still be construed as self-dealing and, also, I’d rather not be lending and borrowing large sums from a friend.

Any suggestions?

Thx.

Ron Guy

#3

Re: Roth IRA’s for rehabs?-Who? - Posted by Shaun

Posted by Shaun on December 14, 2000 at 05:50:46:

We have posted twice asking who does these IRAs? Is there more that one company? Is this difficult to answer or why?

#4

Re: Roth IRA’s for rehabs? - Posted by TomC (Md)

Posted by TomC (Md) on December 13, 2000 at 08:12:54:

If you have regular IRA with a healthy balance, you could roll it over to a Roth IRA. That would let you make those high % REI returns tax free.

The downside is that you have to pay income tax on the amount you roll over in the same tax year that the roll over takes place.

If you were to consider the roll over, wait until at least Jan 2nd so you can stall the tax-man for as long as possible!!

TomC

#5

Re: Roth IRA’s for rehabs? - Posted by Sh-FL

Posted by Sh-FL on December 13, 2000 at 07:13:07:

Good point! How do you get enough in there to invest? Also, hear there are several companies now that will do self directed IRAs for you? Any one have any suggestions of a number we can compare? More than one?

#6

Listing Of self-directed IRA trustees… - Posted by Houserookie

Posted by Houserookie on December 14, 2000 at 06:31:27:

Not sure if this is what you are looking for, but here they are. Trustee’s for Self-Directed IRA’s.

Remember, these are trustees. If you are looking for actual investors, you need to build that list yourself. I have had some luck finding mine through CPAs and financial advisors. They generally have hundreds of clients with money to invest. : )

Bank of Commerce

8920 Mirimar Road

San Diego, CA 92126

Attn: Ramona Schmidt

(619) 578-6424

Transcorp Pension Services

P.O. Box 31051

Laguna Hills, CA 92654

(800) 228-0336 (National)

(800) 821-6398 (California)

Sterling Trust

P.O. Box 2526

Waco, TX 76702-2526

American Pension Services

9710 S. 700 East

Suite #203

Sandy, UT 84070

(801) 571-0667

Franklin Fund

777 Mariner’s Island Blvd.

San Mateo, CA 94404

(415) 378-2200

Janus Fund

P.O. Box 173375

Denver, CO 80217-3375

(800) 525-3713

San Diego National Bank

Attn: James Rinn

(619) 231-4989

First National Bank

Albuquerque, NM

Attn: Charles Justice

(505) 765-4592

Howard Bank

Burlington, VT

Attn: Penny Tabor

(802) 658-1010

Mid Ohio Securities

P.O. Box 1529

Elyria, OH 44036

(440) 323-5491 Fax: (440) 323-4529

Retirement Accounts, Inc.

P.O. Box 3017

Winter Park, FL

First Pension

1507 W. Yale

Orange, CA 92667

(800) 562-3635

First Trust Corporation

P.O. Box 173301

Denver, CO 80217-3301

(800) 525-2124

(303) 293-2223

First Financial Trust

8100 Mountain Rd. NE

Suite #110

Albuquerque, NM 87110

Attn: Teresa DeMenge

(800) 996-9000

(505) 265-8466

Entrust Administration

P.O. Box 21529

Piedmont, CA 94620

Hugh Bromma

(800) 393-9653

California Pension Adminstrators

6902 Sunset Blvd.

Los Angles, CA 90028

(213) 962-8726

Lincoln Trust

P.O. Box 5831 TA

Denver, CO 80217

(800) 825-2501

Qualified Pensions, Inc.

3396 North Hayden Road

Scottsdale, AZ 85251

(800) 554-4048

Pensco Pension Services

250 Montgomery St.

San Francisco, CA 94104

Bob Heflin

415-274-5600

Midwest Trust Company

7400 College Blvd.

Suite 150

Overland Park, KS 66210

Carolyn Dunigan

913-696-0100

Intrust

1910 S. Highland Ave.

Suite 105

Lombard, IL 60148-6164

708-916-5300

#7

Re: Roth IRA’s for rehabs? - Posted by Bud Branstetter

Posted by Bud Branstetter on December 13, 2000 at 12:17:42:

I have posted a list of over a dozen self-directed IRA custodians before. Many of them allow hard money/nonrecourse loans to fund the purchase. Many also allow owner financing. There is an issue of unrelated business income that has to be addressed when leveraging. You may personally owe the tax on the profit when doing a leveraged deal in the IRA. A true flip of the contract or option are situations where the UBI tax would not be applicable.

To say that the profit can not go into the IRA is incorrect. There are similar ways with participatory loans to move the profits into the IRA and not be subject to UBI tax. Self dealing is definately something you do not want to do. Another investor at an arms length is accepatable to do business with.

I base my comments on having done self directed IRA investing since 1991. I have done leveraged and other creative deals and put profits into the self directed IRA. I have personally researched applicable rules and articles on the subject. Many of these approaches were discussed with Hugh Bromma of Entrust at the Dallas Creonline convention.

#8

Re: Roth IRA’s for rehabs? - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 08:58:58:

Well, I’m by no means an expert on this but it would seem to me that you could do any one of a number of creative real estate transactions to get money into your Roth.

Flipping
Options
Lease Option

Any of these you could do with no money down. Once you’d done several of the no money down transactions, you’d probably have enough to do rehabbing from your Roth.

G-Man

#9

Re: Roth IRA’s for rehabs? - Posted by Rob

Posted by Rob on December 18, 2000 at 19:36:24:

Bud:
I have read that the way to avoid the UBI tax is to flip properties using options. Do agree?

I have also read that the best way to buy property is by setting up a land trust and having your IRA buy into the land trust and instructing your trustee to purchase, flip ect. Any comments

#10

Re: Roth IRA’s for rehabs? - Posted by J.P. Vaughan

Posted by J.P. Vaughan on December 13, 2000 at 09:20:03:

If you are doing “no money down” deals, how can the
profits possibly end up in your IRA???

I know you’re trying to be helpful, but you need to be
careful what you say, Geoffrey. This is incorrect
information that could be harmful to others.

Please don’t answer questions unless you KNOW the answer.
Remember, there are a lot of beginners here who cannot
distinguish good answers from bad answers.

JP

#11

Re: Roth IRA’s for rehabs? - Posted by Bud Branstetter

Posted by Bud Branstetter on December 18, 2000 at 20:33:04:

Rob,

I agree that to avoid UBI is to flip the contract. In effect if you assign the contract to the IRA then have the IRA sell the contract you have just done an option.

The problem comes in when you buy into the IRA a property with owner, existing, or hard money financing. That prorated portion of the profit due to others’ money becomes the UBI with the tax due personally. While the IRS rarely audits IRA and it is easy to dismiss it, it is a problem. Hugh Bromma comments on it in one of his articles.

Mid-Ohio has no problem with buying the beneficial interest of a land trust. You can even be the trustee. You just can’t buy from yourself. They will even allow L/O income. Of course they also allow you to buy leveraged without telling you of the UBI problem. I can see an argument that the personal property interest has nothing to do with the real property financing. Sort of like buying a note at a discount. A similar concept to doing the participatory loan approach.

#12

Using your IRA with NO Money… - Posted by David Alexander

Posted by David Alexander on December 13, 2000 at 11:19:29:

JP,

My understanding of it also is the the IRA doesnt have to have funds to start. This was touted by Ron Legrand on one of his tapes way back when.

But I can think of two ways it could happen.

One, where it’s a True No Money down deal where the IRA gets the Deed, subject to the liens, and does a Cash Out by selling or can sell with Owner financing, then which it would at least generate a down payment and some cashflow.

Or Two the IRA could partner with someone, they put up the cash for a profit split, and the IRA’s just put up the deal.

How about a third… The IRA has a deal an just assigns it.

Disclaimer
I havent talked to Mid-Ohio about any of these three scenarios… I just remember Ron saying he had and it could be done to put cash into your IRA, in other words Your IRA is principal doing the deal.

David Alexander

#13

Re: Roth IRA’s for rehabs? - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 10:05:40:

http://www.midoh.com/landtrust.htm

Quoting them:

We do not need to see the paperwork pertaining to what the Land Trust is buying. You IRA is buying the Land Trust and the Land Trust is purchasing the asset.

The way I see that is that I could purchase something and put it into the land trust. I could then have the IRA purchase the land trust.

Am I missing something?

G-Man

#14

Re: Roth IRA’s for rehabs? - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 09:47:51:

Ok. Now I need your help JP.

Here are the notes I had on this subject:

You get a “self-directed IRA account”. One company I had written down is midoh.com (Mid Ohio Securities).

The example we were given was a house worth $80,000 with a $58,000 mortgage. Get the deed to the house and deed it to the IRA. Sell the house for $89,900 - $58,000 mortgage = $31,900 profit that is in your IRA because the IRA had the deed.

Now, I must have missed something so would you be so kind as to explain where I messed up so I don’t make this mistake again please! :slight_smile:

G-Man

#15

Re: Roth IRA’s for rehabs? - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 09:40:38:

That’s what I heard at a seminar I went to recently. They said you could assign your interest into the Roth. I swear I heard it. I’ll creep back into the corner now and just read. Don’t want to lead anyone astray.

G-Man

#16

Re: Using your IRA with NO Money… - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 12:00:23:

This is where I heard this information. In a short seminar that Ron LeGrand had here in atlanta a month ago.

G-Man

#17

Re: Roth IRA’s for rehabs? - Posted by Rob FL

Posted by Rob FL on December 13, 2000 at 11:03:06:

If the IRA doesn’t have much money in it already, how can you purchase the land trust (or the house)? The trust interest would have to be purchased with cash or some other asset of the IRA. I believe that was the question in the original post.

#18

Re: Roth IRA’s for rehabs? - Posted by J.P. Vaughan

Posted by J.P. Vaughan on December 13, 2000 at 21:44:20:

I am not an expert on IRA’s; I am an attorney, but this
is NOT legal advice. I see some potentially very serious
"self-dealing" problems here.

JP

#19

Here’s the Deal… - Posted by J.P. Vaughan

Posted by J.P. Vaughan on December 13, 2000 at 22:22:52:

I happen to think that the way an IRA is operated is a
rather serious matter. I also happen to think that
the “self dealling” issue is ripe for problems. I simply
do not think non-experts like you should be so cavalier
in giving advice on IRAs, regardless of what you heard
or what you think you heard at a seminar.

#20

Re: Roth IRA’s for rehabs? - Posted by Geoffrey Faivre-Malloy

Posted by Geoffrey Faivre-Malloy on December 13, 2000 at 11:58:51:

From what I understand from reading the midoh.com web site and what I learned at the seminar, if you did a no money down deal, you could just transfer the deed to your IRA. When you sold the profits would go into your IRA thus increasing the amount of available cash to do rehabs or purchase from your IRA for deals that required a small amount of money down.

But - as JP so aptly stated - I’m wrong :wink: So, I’m hoping someone can please clear up my confusion.

G-Man