Solo IRA for Real Estate - Or other ideas?

[lottamoxie]

Artillery,

This sounds like a bad deal from several angles, risky, and unwise. Please rethink this because this has waving red flags all over it.

It's nice you want to help out an old family friend, but in doing so in this way you are going to create financial complexities in your own life that may just be impossible to manage. Why does this old family friend need *you* to do the deal? You're unemployed, no income coming in, and you want to purchase 2 properties that you were not expecting or planning to purchase? Bad idea.

FYI, I've never obtained a loan when I wasn't working. I only got a mortgage or refi when I was gainfully employed. And I would never use retirement monies to purchase real estate anyway.

[aslowdodge]

This whole thing screams disaster. You're going to incur costs setting up the sdira if you are even qualified . Plenty of pitfalls to gamble your retirement with.
Last time I helped a friend of 30'years it went to court, I lost $10k I loaned out and a lifelong friend.

[artillery77]

While I appreciate the comments of concern, the risk in this transaction doesn't belong to me. I'm buying property with positive equity at the cost remaining in the debt. If something were to happen where the original owner flakes out, I simply sell the properties, pocket the gain and close down the qualified plan and move the funds back to a traditional IRA.

The rental, already rented to tenants for 3 years, is priced at about 8 years gross rents. Considering you buy at 10 and sell at 20, this is a decent arrangement even if it gets dropped on me. The other property, well, I'd be hard pressed to evict an old family friend with 5 little ones there, but the market is warm and the area is appreciating nicely.

And yes, I'm currently unemployed, because I'm taking care of my father. I've been gainfully employed since I was 13. I'm not too worried about being able to find another job.

It is sad that where I grew up is such a novelty. This is a town where firefighters are all volunteers. People organize to take food to the elderly. The median family income is only $10-20K above the poverty line, yet almost nobody is on food stamps. People go to church/temple etc, but are polite and respectful of differences. Santa comes to downtown and has a toy to hand each child. I went to the local Wal-Mart in seeking donations for the local soup kitchen and walked away with 3 crates of new cookies in tins. If I want to speak to the county sheriff, I call him at home. The mayor is a volunteer position and the state legislators are generally picked from the old Republicans at the coffee shop that talk smart and someone finally volunteers to spend a month in Pierre, where they'll pass a budget and not much else. People don't fence their yards...and most don't even lock their homes.

Hearing I was home and needed a car, another old friend let me use theirs. No charge, with some admonishment when I dropped it off and included an expensive bottle of liquor with a thank you. While we were remodeling my parent's home another old friend allowed me to come in and shower whenever. The door is always open, and literally I mean they don't lock it.

Now to keep a place like that going, if you get a foul creature, you need to get rid of it. This guy needs to go. Everyone close to it would appreciate a more nuanced way of doing it than the old way. The judgement on me is easy. Came from good folks, but then took off to run around in the cities for the rest of his life. Even with good intentions, this guy wasn't here to keep the place going. This is a town that values actions over platitudes and giving back is just a lifestyle because of necessity. What's his poor mother going to do after she's alone?

So we meet, and I'd met with a few others while home as well, but this one involved the law and finance. Things few talk about and fewer still understand.

The law is complicated. She can't divorce him until the sentencing is complete or he may gain visitation to the kids. Until she gets divorced, she's not to work as he is no longer making any money sitting in jail. As he keeps getting extensions for the past 8 months after pleading guilty, she's run out of money. She can't get assistance because she has too much real estate. She's going to lose the real estate to foreclosure as she can no longer make the payments. She can't sell the property for a gain, as it will show income, and she still needs a home for her and her 5 kids. Further we can't give her money because the equity in the valuation will turn into a liability for her in the divorce.

So the reason why it is me is because I came up with the plan. Sell the property to me at whatever is owed. No income. She can't have a family member do it because of related party issues. I'm 2000 miles away and have real estate investments of my own. If he doesn't like the purchase price later, too bad, it was sold to avoid further harm coming to them by way of a default. With me owning the property, I can do whatever I want with it. The already rented property will pay for itself once they get out of this horrendous loan he got them in, and the property management company that said they haven't gotten a call on the place in years. Her Dad is about to retire from the construction industry. If something breaks, he'll be able to fix it. He built his own home by himself. So now she's free to get assistance for the duration of this trial, and doesn't have to worry about money for a bit. Once the trial is complete and the divorce finalized, she can return to work. When she's ready, she can buy back the property. When the divorce proceedings to come to light, there's nothing left in the asset column except for this guy's 401K. The amount of forced liquidation strengthens the argument of him giving up all visitation rights.

The attorney likes the plan from her end, it's just the question of....who would ever do this for someone that could be trusted and has the ability to do so? For me, this helps with the downtown nods and casual, if your folks ever need something. Because frankly, my mother will be alone soon, and she's not ready for it. It also helps her in a moment of need and screws over a guy that deserves to be screwed over.

I've already sold the stocks. I don't see the downside except in the plan partner and associated fees. If they are too high, a loan may be better, except because I'm not working, banks get all funny. Not poor, but not liquid enough for this.

Now you have it all. Any suggestions?

[lottamoxie]

No suggestions other than what was advised above. I suspect no one else who's opined will change their opinion either.

Good luck with whatever you decide to do.

[Lowexpectations]

I agree nothing changes my opinion and the OP won't change their stance either

[aslowdodge]

Op, don't forget your costs. Expect about $1500 or so to set up the sdira and closing costs of the house buying and selling.
I would not skip out on title insurance, enough risk imho just doing this.

[artillery77]

Originally Posted by aslowdodge

Op, don't forget your costs. Expect about $1500 or so to set up the sdira and closing costs of the house buying and selling.
I would not skip out on title insurance, enough risk imho just doing this.

Thank you for the on target response, a pity I'm not allowed to rep you again. The costs will be added to the purchase price and I completely agree that title insurance is a must for me. Do you know of a reputable SDIRA provider?

[aslowdodge]

Originally Posted by artillery77

Thank you for the on target response, a pity I'm not allowed to rep you again. The costs will be added to the purchase price and I completely agree that title insurance is a must for me. Do you know of a reputable SDIRA provider?

I will pm you the guy I used. I set up 2.