Jim et al,
I have a lot of threads on this forum pertaining to SD Roths in particular. Search Financial Friends.
Yes, you have self dealing issues here - without a doubt. You also have leverage issues (can’t leverage within an IRA - UNLESS it is non-recourse), but the way you describe you have Self Dealing issues.
Here’s a clean way to do this is to have a financial friend do this with you. We are going to pick on Jefferson, because he’s so pick-on-able.
Jefferson finds a $400,000. park to buy, Jefferson has no money for the down, but has great management skills. He calls me and asks if I know someone with some money to invest - he needs the down money. I happen to have a Roth IRA that is NOT self directed, so I get busy and get those funds transferred over to a Self Directed Custodian - there are several out there now - we personally have accounts in Equity Trust and Kingdom Trust - we like to use Kingdom Trust and are moving all accounts over - much better customer service, much faster and lower fees.
Ok, back to the structure - Jefferson goes to the local bank in the town the park is in and asks what kind of a deal they can offer. They want 25% down. My Self Directed Roth is sitting with the down money Jefferson needs - so my proposal to Jefferson is for $100,000 invested, my SD Roth gets an Equity Participation note that gives 10% of gross rents plus 25% of the upside when Jefferson sells. 25% of the gross sale price over the original $400,000. after sales commission and closing costs.
You can negotiate whatever you can negotiate - but the structure is very clean - we are not related parties - there is no self dealing with Jefferson and his Roth - the IRA doesn’t own a trailer park (liability) - the IRA doesn’t own an LLC (potential UBTI), etc, etc.
Jefferson buys a park with no money down, my Roth is invested with a great guy, who has great management skills in parks and everyone makes money.
Remember, it is near impossible for you to save enough yourself paying taxes on your gains. It is against IRC rules for you to do this with your own funds, your Dad’s funds, your Son’s funds, your Wife’s funds, etc. Why not help a friend climb this ladder two rungs at a time?
Financial friends can get you to where you want to go - and don’t be stingy with them. We view our financial friends’ accounts sort of like a savings account for us of sorts. Put as much away in their accounts, so you may redeploy larger amounts on the next deal. One day your portfolio is huge - and their retirement account is huge, helping each other grow - that’s the goal.