Entrust Learning Center > 3. Investment Options > A Split Purchase Using an IRA and Personal Funds

A Split Purchase Using an IRA and Personal Funds

Bill is a broker and is interested in purchasing additional real property for investment purposes.

Locating the Property 

Bill had attended one of The Entrust Group’s courses on investing in real estate and knew about the ten basic steps to purchase property in a retirement fund. He used personal contacts and the MLS directory to search for a rehab in an area he was familiar with. He located the property, a 10-unit apartment building with adjacent land for available expansion.

Funding the Purchase by using an IRA Account and Personal Funds

Bill decided to fund the purchase by using his personal funds and his traditional IRA funds. He split the funding equally so he and his IRA each owned 50% of the investment.

Bill completed a Buy Direction Letter, supplied by The Entrust Group as the account administrator and serving as the agent for the custodian, with the details of the transaction. At that point, The Entrust Group completed the rest of the transaction, working directly Bill’s choice of title and escrow companies

The Buy Direction Letter and the appropriate Title and Escrow information were sent to The Entrust Group. Entrust was also informed that the Title Company and Escrow Agent would contact them to complete the transaction.

Brentwood Escrow opened the Escrow account for the property and accepted the initial deposit. Though the Escrow Company occasionally holds the deposit check for a period of time, it did not do so in this case. The check was immediately deposited into the Escrow account and closing was scheduled for 60 days from that point.

Bill engaged American Title (ATCO) for this transaction and requested a preliminary title report.
Entrust requested a copy of the deed from ATCO and instructed them to record it in the purchasers’ names. The vesting showed a 50% undivided interest in subject property in the name of Bill Heller, married person (though he owned the property singly), and showed the remaining 50% of the interest to be: EBank and Trust FBO Bill Heller IRA IRA, The Entrust Group, Administrator.

Closing

At closing, the Settlement Statement provided a breakdown of the costs and charges allocated among the buyers and sellers. The earnest money deposit was split: $3,600 remained in escrow and $3,600 was refunded to Bill. The refund to Bill was for the portion that his Plan has an interest in. If that portion had not been refunded to Bill, it would have been considered to be a contribution. Bill made out a check to the escrow company for the amount needed for 50% of the purchase that was coming from his personal funds, including the $3,600 which was part of the initial deposit. He was then refunded the deposit money.

The sale closed and the seller and buyer were satisfied with the deal. Bill owned the property with a 50% personal interest and a 50% interest in his IRA.

The Transaction Details:

Commercial Property Closing 
Bill Heller Buys a 10 Unit Apartment 
Building with 50% IRA and 50% personal

Assignment of Rental Agreements

The rental agreements for the apartments have now been assigned to Bill and his plan equally. Bill advised the renters that all checks needed to be made out to his plan. Entrust receives the payments and divides all income equally between Bill and his plan. Entrust then writes a check to Bill for his proportionate ownership. That check is not written from his IRA, but from a separate account maintained for this purpose. In the case of co-ownership by an IRA or other persons or entities, it is also advisable to employ the services of a property manager or outside bookkeeper.
When Bill first took ownership of the apartment building, his IRA had no funds in its checking account from operating income. Rental Payments were due between the first and fifth of the month, and a total of $40,000 was collected. This income was allocated proportionately to Bill’s IRA and his personal ownership. Bill had allocated $10,000 from his IRA and $10,000 from personal funds to meet potential expenditures. This is shown as the beginning cash balance of $20,000.

Expenses

Expenses for the apartment building, such as hazard insurance, taxes, and repairs will be divided pro-rata between the Plan and Bill. Bill has the ability to write checks on the spot for any repairs or other expenses from the trust money market account that he established at his brokerage firm.
Expenses were paid and prorated as follows:

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