Buying a park with a self directed IRA

I am interested in transferring my 401k to a self directed IRA to purchase a mobile home park.
Any advise and expertise would be greatly appreciated.

Thanks,

Brian

Pensco and Millennium are a couple of the custodians that can help. There’s a handful just like them.

I looked into doing the same but keep in mind if you plan to put debt on the property then find an asset based lender that will not require contingent liability or for you to personally guarantee the loan. The rules are very specific on how you approach it when pairing with debt. Good luck!

-Peyton

I believe any debt triggers UDFI, but I’m hoping to be wrong.
The “cleanest” approach I’ve seen for SDIRA is to make loans to others who may also invest in your deal. I’ve seen mixed views on whether equity kickers trigger ubit but the argument is that it would be a gain and not ordinary income so should be clear.

When I retired I transferred my 401K to a SDIRA. Then used that money to invest passively with folks (F&D) who buy MHP’s. Have had a very good return for years now doing that. Would not want to venture out and purchase a park directly with all the self dealing rules and laws concerning a SDIRA. But everyone is different regarding that.

I used a SDIRA for an investment and used the “Nations Largest SDIRA Company” called Entrust. They are horrible, really screwed thing up over and over. Suggest you use anybody but them. My investment was very passive so my check writing/cashing fees are negligible, however if you will operate the running of the park out of the SDIRA be sure to find a “checkbook SDIRA”. This is a term used to describe a SDIRA that is set up for you to use it like a checking account allowing lots of deposits and check writting without high fees for each transaction.
I believe the rules are that if your SDIRA buys a property you personally are not allowed to work on the property (repairs, maintenance, etc). Check that out closely as I’m no lawyer and my SDIRA investments are passive but that rule was what convinced me to lend money for someone else to buy a house instead of buying a rental directly.

This will be considered self-dealing and is prohibited by IRS regulations. You cannot use a SDIRA to invest in something you will self-manage. You have to invest in something that is considered “out of your control” for the retirement protection it provides against your own misfortune. People may do things that are against the law, but it doesn’t make it legal. Why risk your retirement savings on a stunt? If you want the tax savings of the IRA investment, you are supposed to put the money out of your own control. That’s what the custodian is supposed to be supervising on your behalf.

UDFI or UBTI is a concern also, if you leverage a tax exempt investment there are special rules that tax your leveraged profit. This is regardless of who manages the investment, I.e. even if you do it right investing through a fund.

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Brandon is right that self-dealing is an important issue to be aware of. But if you hire out management and maintenance so that you are not involved in day-to-day maintenance, you shouldn’t run afoul of self-dealing rules. Buying a park with no POHs would be strongly preferred over owning mobile homes in the park. I would not be afraid to purchase a lot-rent-only park in my IRA, but would never consider a park with POHs.

I have had a SDIRA with Pensco for about 8 years which invests in real estate and funds. The best reference I have found on the topic is “The Self Directed IRA Handbook” by Mat Sorensen. It is $20 on amazon and well worth it. 240 pages, lots of legal citations, red flags to avoid. The book is about 100 times more informative than the rep you get on the phone at Pensco…

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It is my understanding that you can have POH in a park that you own but each must be titled separately and deposits need to go into the SDIRA for that transaction. In other words you can’t lump lot rent in with POH rental or sales into one deposit. Someone correct me if I m wrong.

I think mixing POH that “you” own with a SDIRA park would be very close to, if not over, the line of prohibited self-dealing. A park where you’re going to have to do at least some of the DD and management is already skirting the self-dealing issue, even if you hire out both day-to-day (“onsite”) and “supervisory” management (writing the checks & paying the bills, tenant approvals, legal problems, etc). If you are actively involved with supervising the property and don’t have a third-party management company to point to, you’re already on top of the line of self-dealing. I would not advise “getting tricky” with POH. To me, it has bad optics.

In addition to all other posts, if you want to deal in real or personal property without being in the chain of title, consider buying an option on the property versus buying the property.

Options give the right but not the obligation to acquire / buy / sell / lease / manage, etc.

Check with a good TPA (third party administrator) for how they would move the funds in and out. I’ve had good experiences with Quest IRA in Houston. Quincy Long is the principal and he knows how to say no. And that’s French for protecting you from yourself.

Mike

I checked with my TPA and according to what I was toldeach home would need to be titled separately through the same IRA or 401k that the park is titled under. The way he explained self dealing would be attempting to buy homes in your own name and renting out to park tenants under the IRA. I questioned if I could buy through a second self directed IRA and place in park under first Ira title and was told no! TPA repeated that homes would need to be under separate title or transaction/ purchase through the same Ira titling as the park. I am not a lawyer so please take this as second hand info and do your own homework before moving forward. Just what I was told.