Posted by Hugh Bromma on June 08, 1999 at 18:20:09:

Thanks Bob!!!



Posted by RONALD DAVIS on June 08, 1999 at 09:39:21:

I am looking for creative ideas on how to eventually get a 50-unit apartment complex into either of two $6000 ROTH IRAs, or possibly into both of these ROTH IRAs.

This complex has dishwashers, an operating swimming pool, and was rented to well paid factory workers when it was first built in 1964. This section of town is now in a rapid growth stage with immigrants from Mexico. I currently own, and personally manage, two 20-unit apartment buildings in this market that are available for trade if necessary in order to get the 50-unit complex. This 50-unit complex is not on the market. However, I was able to personally meet and visit briefly with the owner, and he agreed to discuss a sale later, when he returns from a long trip the latter part of June or early July.

The owner is personable, wealthy and probably in his early sixties. I am almost certain that he has owned this property for more than 25 yrs, and maybe since it was built. He is extremely busy running another business, and has neglected this property. Although it looks OK from the outside, it has only 12 occupied apts. It has a resident mgr. without any professional mgmt. company involved. I visited with a resident who appeared to be a minor repair person and grounds keeper. He told me that previously the owner looked into giving the building away to a charity as a tax writeoff, but nothing ever came of it. This leads me to think the owner would like a proposal that causes him little tax pain.

I am now starting to try to learn how to get properties into IRAs. I am aware that Entrust, Mid Ohio and a few other companies are set up to accomplish this. However, what I am seeking with this inquiry is creative ways to do it.

To stimulate your thought processes, here are some approaches I thought of… If the seller has a sibling that he wants to leave money to:

1.He could have a sibling’s IRA purchase the property from him for a very low price. A low price is easily justified because expenses exceed income even without allowing for depreciation.

  1. Have my IRA purchase an option to buy the property from the sibling’s IRA after some future date.

  2. Also, have the sibling’s IRA lease the property to me, or to a pass-thru entity of mine. Me or my entity would then manage and rehab the property for several years taking advantage of the deductability of the lease payments and rehab expenses. I or my entity do have the necessary funds to do this.

3.(Alternate) Have the sibling’s IRA lease the property to my IRA. The problem here is that my IRA has only enough money to buy the option and not enough for lease payments, let along rehab expenses. Also, my IRA can not offset lease costs and rehab costs against taxes owed.

  1. My IRA can only exercise its low down payment, seller financed option after all the rehab is done, and the income exceeds the monthly loan payments to the sibling’s IRA.

  2. Use some kind of charitable remainder trust, or a gifting plan or???

It is probably obvious that structuring deals is new territory for me, so I will appreciate any ideas that are posted to achieve the two objectives of:

A. Eventually have my IRA(s) own the 50 units.
B. Create a small, or no tax burden for the current owner.

Thank you for any ideas.


Posted by Hugh Bromma on June 08, 1999 at 18:18:43:

Hi Ron.

You can use both Roth’s to purchase such assets as you contemplate. You take an undivided interest in the proprotionate amounts that you invest for each IRA.

Items 1, 2 and 3 work. Item 3 works also, and remember that you are not required to own the entire property (ies)in your IRAs. You can take an undivided interest personally. So your IRAs may own, say, one fourth each, and you own one half. Income and expense are shared propertionately. Also, you can leverage the transaction. If you leverage, you can actually take advantage of P & L in the IRAs, because leveraged transactions are subject to unrelated business income tax. With the flow being negative (hope not for to long) you can avoid the UBIT until you reach a positive of a net of $1,000. If you own a portion of the asset, you have personal write-offs as well.

The owner’s interest in having little tax pain, leaves the IRA approach to a sybling of his to purchase at a low price. If he has a Roth, the tax issues are moot. If traditional, he can leave the traditional IRA to a CRT. By the way. The owner could leave the IRA to a CRT and the CRT can sell it to your IRA. This should be set up well in advance of the contemplated purchase.

If you have any other questions, please e-mail me or call at 800 392-9653 or until thursday at 310 265 9590.

Re: Purchasing RE in your IRA - Posted by Bob-MD

Posted by Bob-MD on June 08, 1999 at 17:08:17:


You should read the articles by Hugh Bromma in the How-To section. He is the CEO of Entrust and I think he has information available to do what you want.