is a ROBS right for us?
Dear Jeff, my husband and I have a history of rental income earned on single family houses and a duplex that we own. This income has been reported for several years on our taxes but not under a company name – just a Schedule E on our 1040. We have also built a duplex (using a builder) and our own financing. I have been the GC on a small addition to our primary residence.
We want to buy a 1-acre piece of land zoned multifamily in our area, and we want to buy the allowable 20 units on it (row houses or condos). This project would cost somewhere around 4-5M. We only have 250K cash! Our Equifax scores are 778 for each of us. Our net worth is just over 1M. We have W2 income of 100K gross and I report about 25K on my Schedule E. I’m researching how I could get this project funded. We are intending to build and sell off the units. We live near Vail, CO where the market for real estate is very good. We may be interested in keeping a few as rentals. We have 200K in retirement funds (another 200K in my husband’s work 401K). Is a ROBS right for us? Any ideas would be appreciated. I’ve been reading articles by FitSmallBusiness.com and it’s been helpful info. Thanks in advance, Kyla Marsh
Thank you for your question – we’re glad you enjoy our articles.
Based on the situation you’ve described, it’s possible that a ROBS would work for you. However, this would be in conjunction with some other financing tools because of the size of the project you’ve outlined. Our recommended ROBS provider, Guidant, routinely helps clients to use ROBS as a down payment for SBA loans – which might work in your case. If you do use a ROBS it will be important to structure things correctly because (1) you’ll have to set up a C-corp and a 401(k) as part of your ROBS and (2) if you have any employees who are eligible to participate in your 401(k) will have to be given the option to invest in the business as well.
Another option that you might consider is a Self-Directed IRA. Depending on the price of the land, you might be able to buy the property using a Self-Directed IRA (funded with Rollovers from your existing retirement assets) and then get a construction loan to build the condos or row houses. However, using this method you would need to find nonrecourse financing for the construction because you’re prohibited from personally guaranteeing any loan issued to an IRA.
For a good first step, consider contacting Guidant to set up a free consultation. You can review the financials of your proposed project more in-depth and they can see whether a ROBS may work for you.
Best of luck!