Questions on sub2 deal using Roth IRA - Posted by Greg

Posted by TAT on September 05, 2003 at 13:14:27:

I have been doing some research with regards to UBIT for IRAs. I talked with equity trust and without giving legal advice they believe the law to state that only if the IRA borrows the money that you are hit with UBIT. If you purchase sub to, the IRA is not the borrower, the original homeowner is. IRA just purchased the home with existing liens on the property. Not an expert just a messenger.

Questions on sub2 deal using Roth IRA - Posted by Greg

Posted by Greg on September 03, 2003 at 15:34:09:

I have a deal working that I believe can probably work as a sub2, with me making up a couple back payments ($2K) and giving the seller some cash to move ($2K).

My questions are:

  1. If I’m going to take possession of the property under my Roth IRA, does the backpayment money and/or the cash to the seller to move have to come out of my IRA? I’ve got a little less than $6K in my Midoh Roth IRA. As mentioned above, back payments and move money will be ~ $4K, and there is another payment due on Sept. 15th. Since there are a few months left in the year, I’d like to think I could swing another deal out of my Roth by year-end, if possible. I have other Roth IRA money I could move over from stock and mutual fund investments, if necessary.

And, I guess the bigger question is:
2. What’s the best way to structure the deal? This isn’t a “fat” deal where there is a ton of equity. But, the comps in the area will support about a $25-30K back end profit using a lease option exit strategy. I’m figuring cash flow at about $200/month. Will look to get $4-6K for option money, while of course hoping for more.

Thanks in advance for any help,

One more Question on sub2 deal using Roth IRA - Posted by Greg

Posted by Greg on September 03, 2003 at 15:59:39:

Is it acceptable that I take ownership of the property using my LLC as trustee and my Roth IRA to receive beneficial interest in the trust?

Thanks again,

Answers… - Posted by JP

Posted by JP on September 04, 2003 at 24:31:02:

The answer to question #1 is yes, all the money has to come from your Roth IRA.

Are you aware of UBIT? The transaction you describe (taking a property subject to in your IRA) will be subject to UBIT due to the debt financing, and any profits will be subject to UBIT i.e close to 40% tax. This pretty much negates any reason to do the deal in your IRA in the first place …