Real Estate investment in a self directed IRA
Question 1: (direct investment) Can a self directed IRA make an investment in a real estate LLC where the IRA owner is also a member (minority interest) and the member’s business is going to be utilizing part of the space for business purposes and will be paying FMV rent?
Question 2: (indirect investment) If the answer to question 1 is no then can a self directed IRA make an investment into an LLC that is a source of financing to the same LLC entity (same circumstances as above with respect to occupancy and rent) that owns the real estate for a fixed rate of return (ie 5% annually) or a non stated rate of return?
In both cases the LLC entity that owns the real estate will have leverage that is secured by the property and will correspondingly be personally guaranteed by the LLC members.
Permalink Submitted by Alan Spross on Tue, 2009-11-10 23:57
These types of holdings skirt the definition of IRA prohibited transactions as well as those of disqualified parties. The options are highly complex, although there are a few self directed IRA custodians that specialize in real estate holding in an IRA. I would be very careful, as there are any number of pitfalls that can surface. Here is further analysis of the situation:
http://www.iraaa.org/learnmore/viewarticle.aspx?aid=34