Investing IRA's by pooling money - Posted by Tim

Posted by Sailor on April 12, 2006 at 19:31:33:

This is a personal SDIRA, & my deals work the same as the ones I did in the past w/the exception that there’s an extra step in gettings papers to/from the holding co. I only do ca$h deals, as (1) you cannot obligate an IRA w/a mortgage, & (2) I don’t like to rent $$$ @ this stage in life, anyway. I didn’t set up the account myself, as I was cruising abroad @ the time. My clever RE agent did all the research, so it was a matter of signing papers. However, there really isn’t much involved these days other than deciding which co. to use. (Back in the days, though, research was more difficult, especially w/out the internet.) Note that you can use more than one account, though some fees would be redundant.

One thing to consider is keeping SDIRA accounts simple because you don’t want to involve yourself in a continuous cycle of requesting funds & paying outrageous ($25 per) check fees. For rental properties I use one or more mgt companies that can collect rent & pay operating expenses. For me that is cheaper, w/less bookkeeping.

Sorry I can’t be more helpful, but there really isn’t much involved in setting up or using a SDIRA acct. Pls do be careful using your mom’s funds. A deal that might be appropriate for the younger you may not be a sound one for her. She doesn’t have as many years to recuperate from a less than good investment. Remember, too, that we older folks often have life-threatening or altering events requiring liquidity. At my age I would never consider any investment that wasn’t pretty liquid in both good & bad markets (why I have waterfront). At the other end of the spectrum, I wouldn’t churn the acct, either. Make sure Mom knows enough to make her own decisions, fully understanding all risks–don’t just tell her where to sign. If she doesn’t understand, or doesn’t want to learn, then REI isn’t the place for her retirement $$$. REI isn’t right for everyone.

Another thing to remember in all investing, SDIRA or other, is to not put all one’s eggs in a single basket (after all, it is that time of year). I try to stage my investments to pay off sequentially. Sometimes things have a way of happening all @ once, but I do attempt to plan otherwise. Nowadays I think in terms of 1-5 years, though in the past I had plans as long as 30 years.

One of the beauties of SDIRA investments is that you no longer have to muck w/1031’s (oh how well I remember the audit of 1989). That increases your $$$, just like compound interest. No tax planning is necessary, as there are no tax consequences as long as no distributions are taken. Once set-up, a SIDRA is kind of a lazy gal’s way to invest. I no longer have to spend all that extra time tax planning. Gee, maybe that apple pie I baked this afternoon is the result of my SIDRA!

Tye

Investing IRA’s by pooling money - Posted by Tim

Posted by Tim on April 11, 2006 at 22:42:37:

Hello all,
I just attended a meeting at my local real estate investing club in which the subject was owning real estate in the name of a self-directed IRA (SDIRA). The question came up about forming an LLC in the name of a SDIRA, and partnering the LLC with either yourself or other LLCs (may or not be in the name of the respective owners’ SDIRAs). This partnership would use the combined funds to purchase a piece of real estate without outside (bank) financing. The questioner challenged the legality of such an ownership arrangement on the basis that it’s “pooling money”.

I have an interest in forming such a structure, and I thought it worthwhile to ask if anybody could share information of this subject. I also believe that it would make an very interesting topic of discussion.

Thank you in advance for your input, and thanks to everybody for taking the time to share your thoughts on such a wide variety of aspects of REI!!!

Re: Investing IRA’s by pooling money - Posted by Todd-Ohio

Posted by Todd-Ohio on April 13, 2006 at 11:49:46:

As far as the subject of “pooling money” is concerned, then you may want to do a Google search for Alan Cowgil. He is a national speaker on borrowing private money, and he and his attorney have put together a course (booklet?) on SEC rules for pooling money for RE investors.

Re: Investing IRA’s by pooling money - Posted by John Corey

Posted by John Corey on April 12, 2006 at 16:53:02:

Tim,

There are two issues.

First is the idea of using a SDIRA to buy RE and the various rules or restrictions. Sailor and John Merchant have provided some great info. The Swanson ruling is important.

The second issue of ‘pooling’ is a sensitive topic. A bit of a red herring and a bit of a critical (maybe criminal) issue depending on what you mean by pooling.

The federal government and each state have rules about pooled investments (laws governing the sale of securities, unregistered or registered). If you and your IRA did a deal with a very close relative you might be completely free of any issues. If you got a group of unrelated people together and a minority of the group was to manage the deals then the discussion is much more clearly in the penalty zone.

So, do your research. Avoid trying to recruit others into any such scheme until you clearly know the rules. Separate out what is mostly a question about how to use an SDIRA vs. what constitutes an illegal pooling of investor funds (independent of if an IRA is involved). Note it is illegal to discuss publicly that you are forming an investment group where the investors will be pooling their funds as that tend to sound like you are soliciting or otherwise advertising an (unregistered securities) opportunity.

John Corey

Re: Investing IRA’s by pooling money - Posted by Sailor

Posted by Sailor on April 12, 2006 at 11:22:12:

I’ve been investing w/a SDIRA for 15 years, & though am not an expert, I do know that you can own a % of a deal. You do not have to pool $$$ from different investors, just have each SDIRA hold ownership of a portion of the property. Each SDIRA should be able to own stock in a corporation. However, the actual structure should be in accordance w/your (specialist) attorney & CPA. Each SDIRA should be able to own stock in a corporation. I also prefer not to rent my $$$, but if funds are limited so that you must share a deal, just be sure all parties are not only in agreement, but that structure is in place to handle any situation that arises where the parties are NOT in agreement. Caveat: keep things as simple as possible, as SDIRA fees can get out of hand (e.g., $25 just to cut a single check), especially when you are starting out. Let us know the results of your research–

Tye

Swanson vs. Commissioner - Posted by John Merchant

Posted by John Merchant on April 12, 2006 at 10:07:16:

This US Tax Court decision ruled in favor of the Swanson family who did exactly this…several family members bought shares in their new corp, as did one or more of their SDIRAs…and the tax court said it was OK.

Swanson vs. Commissioner, 106 US Tax Court p. 60 as I recall the citation…you can quickly find it on Google. (I wish I had some Google stock, but I don’t have any Google connection.)

A terrific free resource on SDIRA questions is Entrust’s website and it’s FAQ’s…hundreds of similar Q’s & A’s, all of which appears to be monitored or authored by a lawyer, perhaps one of the Swanson lawyers.

Re: Investing IRA’s by pooling money - Posted by Brian W(IL)

Posted by Brian W(IL) on April 12, 2006 at 17:25:40:

Hi Sailor, you stated that you have been investing for 15 years w/ a SDIRA account. My question is, is this your own personal account or is this an account setup with the funds of another person? Also, if you don’t mind sharing with all of us here, how do you actually structure your deals and if you don’t mind sharing also the step by step process setup. I currently have a SDIRA account which I have setup with my mother’s retirement account funds. I’m just looking for ways to structure the deals because I keep getting conflicting information from the different websites setup for the purpose of setting these types of accounts. Thanks

Re: Investing IRA’s by pooling money - Posted by Jerome

Posted by Jerome on April 13, 2006 at 16:58:17:

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