What are "Linked Transactions" when using a Self-Directed IRA and why do you need to be aware of them? All to often one of our prospective investors for our multi-family deals comes to us and tells us that they want to invest in one of our deals, but that the funds they have in their Self-Directed IRA (or "SDIRA") are earmarked for their own deals.
After discussing prohibited transactions (in this case, you can't lend your own IRA to your own deals), I often hear the "great solution" that goes something like this:

So I can't invest my IRA in my own real estate deal, and my friend Bob can't invest in his own deals with his IRA, so we'll help each other out! I'll invest in Bob's deal, and Bob will invest in mine! Problem solved.

Wrong.
In addition to this being extremely risky (What happens if his deal tanks and yours does well? How much do you trust Bob? What if your deal tanks?) it's also considered a "Linked Transaction.
" A Linked Transaction simply means that you have one transaction linked to another, i.
e.
when you invest in Bob's deal, he'll invest in yours.
Would you really be okay if you invested in Bob's deal, expected his money to come through for your deal and then it didn't? If you have a linked transaction when using your Self-Directed IRA, you could be in just as much hot soup as if you had lent the money to yourself or your own deal.
What usually ends up happening with our investors who have this idea is that they invest their retirement funds with us (a hands off and passive investment) and then invest cash in their own deals.
It lets them do their own deals, AND diversify their IRA or 401k into big multi-family real estate.
Bottom line? Avoid linked transactions.