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How to use an IRA to invest in real estate

First, what is the UBIT tax?

Unrelated business Income Tax

The Unrelated Business Income Tax (UBIT) is assessed when a tax-exempt entity, such as an IRA or solo 401k plan, engages in a business activity that is not related to its general purpose. For example, if a self-directed solo 401k account is used to purchase a shoe store, the income generated from the business would be subject to UBIT.  Reason being, selling shoes is no the general purpose of a solo 401k plan. This tax was created to keep tax-exempt entities on a level playing field with non-tax-exempt entities such as solo 401k plans and IRAs.

Mark Nolan
Compliance Officer
My Solo 401k Financial – Grow. Control. Direct.


What are the tax implications if I invest using my solo 401K?

In a Multi-Family Syndication, if you are investing in a non-active business (like a Multi-Family Building) as a passive investor managed and owned by someone other than you, this would not be subject to UBIT tax. You should always enlist the advice of a qualified tax attorney.  But, for the purposes of this specific investment, your good to go. Keep in mind that distributions and or gains would need to be reinvested or distributed directly to the Solo 401K that originally invested in the syndication to comply with all IRS tax rules.

As a Limited Partner/Investor, this is an example of what this might look like:

If you are a self employed individual that does not have employees and does not receive a W-2 from another employer, then you have the option to transfer your existing IRA to a Solo or Self Directed 401k using  We recommend this company because they are priced well and are extremely knowledgeable in this area. Once you convert your 401K to a solo or self directed 401k, you can invest in a multi-family syndication as a passive investor and be listed on the LLC of that syndication as a limited partner. There is no cap on what you can invest. There is a lot of confusion on this and it relates to taking a business loan from your 401K. Do not confuse the two. This is a passive investment in a non-active entity and is not subject to UBIT if invested properly.  Also, this multi-family syndication investment does not have to be paid back to the 401K like a loan option. A normal loan from your 401k would constitute a possible UBIT, penalties, and/or a required payback period of 5 years with some interest. Taking a loan on a 401K and using it to build your own home, to flip houses regularly or investing in a shoe store are examples of where using your 401k to fund these projects could subject you to these types penalties, fees and UBIT.



We focus our purchases in the MIDWEST AND SOUTH which has strong middle-class employment and a growing population. Complexes range from 100 – 250+ Units  Class B and C  Rents below market average.


Once the property is stabilized and generating greater income, it appraises at a higher value. This puts us in a position to refinance it, allowing us to return our investors initial capital, while still providing a steady cash flow, or  investors can 1031 exchange it for a bigger property.


Stabilized, cash flowing property is attractive to institutional buyers including REIT’s, institutionalized investment firms, or investors looking for real estate investments to diversify their investments. We typically plan on a 5-7 year exit strategy, but may hold some properties for long-term cash flow.


Upon purchase, we perform any deferred maintenance,  upgrade units and exterior in order to increase rents, we place a skilled third party property manager to improve operations and reduce operating expenses. 




Sterling Rhino Capital’s strategy is to capitalize on favorable demographics in metro areas in the MIDWEST and SOUTH regions through the acquisition of Class B and C multi-family assets.

Our objective is to enhance the value of investments through extensive renovations, while maximizing returns to investors and providing residents with an improved quality of living.

We target assets with highly desirable locations in close proximity to large employment centers, major thoroughfares, public transportation access points, public schools, retail centers and grocery stores.

The end result is affordable, high quality properties in desirable locations acquired at a discount relative to market.


B & C



Class B and C properties have experienced an increased demand as rising rates have pushed renters towards more affordable options. As the wage gap and income disparity across the country builds, aggregate demand for Class B and C properties is also expected to increase.

The need for these assets exists regardless of economic cycles. In tougher economic climates, Class A- and B+ renters may be forced to trade down to Class B/C multi-family.  Newer/younger entrants to the renting pool also tend to look for value properties. B/C class buildings fill the need in both robust and weak economic cycles.

No new “B” & “C” class properties are being built for working-class individuals.  When new apartment complexes are built, they are inherently class “A” properties with a corresponding higher rent.

These complexes are typically older and offer the chance for value-added renovations that we require in order to increase cash flow potential.



Income from the properties is distributed quarterly


Unlike single family homes, a multi-family apartment syndication is a business valued primarily by its Net Operating Income (NOI), not property comps. Through physical and operational improvements, you can increase the value of the property by increasing NOI.


Revenue from operations & rental income pays down the debt on the property, which in turns builds equity for investors.


Investors benefit from tax benefits such as accelerated depreciation and cost segregation, possible 1031 exchanges into new projects and tax free return of initial equity.


Investors receive a lump sum payouts at time of sale or refinance.increasing NOI.

Why Invest with Sterling Rhino Capital?

Passive Income

 As a passive equity investor, you’ll receive consistent income distributions directly to your bank account.

Recession Resilient

Avoid the cyclical nature and unavoidable risk of standard equities. Invest in tangible assists that perform in all market cycles.

Tax Benefits

Every investment involves the creation of its own LLC of which you, the investor, are a shareholder allowing for pass-through depreciation of the assets providing significant tax benefits.

Funding Options

Investors can use
Self-Directed IRA’s
Solo 401k’s
Simple IRA’s


Targeted Returns:
15% IRR
8% + COC
2X + ROI


What is syndication?  Syndication is the pooling of investor money where the investor is typically a limited partner and the general partner puts the deal together and manages the business plan to provide a return for the benefit of all investors.

What are your return projections and how are your returns calculated?  We underwrite our deals to deliver an average annual return in the 15% range.  Overall, we’re are looking for 2x ROI (Return on Investment) over the life of the investment (typically a 5 – 7 year hold) with a good portion of that return coming from the sale of the property.

When will I get my original investment back and what is the holding period?  We target a 5 – 7 year hold on our investments.  This provides ample time to execute our value-add plan and then cash flow for a few years while looking for an opportunistic sale. Some investor principal could be returned as early as year 3 from a refinancing event or we may want to continue to cash flow till year 7 if the market is down in year 5.

Will the investment be in an LLC?   Yes.  Each investment will be held in its own LLC of which you, the investor, will own a proportionate percentage of the shares.

What is the minimum investment?  $50,000.

When and how will I get paid?  Distributions are made quarterly from available operating cash flow and are automatically deposited into investors’ bank accounts.  Investors are notified of upcoming distributions and are able to track their distribution history through their investor portal.

How will you communicate with your investors?  We’ll provide monthly/quarterly email updates as follows: 

  • Quarterly Updates:  Current operations and capital improvements for each investment you’re involved in.

  • Quarterly Financials:  Detailed financial results and distribution information.

  • Quarterly​ Distributions: Distributions sent 15 days after the close of each quarter.

  • Tax​ Documents: A K-1 is sent on or before March 31st.

  • We utilize investor management software which will be your portal to access documents and see the real-time status of your investments at anytime.

What are the tax impacts?  Apartment syndications are very tax efficient.  As a partner in our limited partnership, you will benefit from your portion of the investment’s deductions for property taxes, loan interest and depreciation.  We like to use a cost segregation strategy as well to accelerate depreciation. It’s not unusual on a $100K investment to return actual cash in your pocket of $8K while experiencing a paper loss on your annual K-1.  That loss can then be used to offset other income. At time of sale, the partnership gains are treated as long-term capital gains.

What are the risks?  Risks are outlined in the Private Placement Memorandum.  In 2009, at the bottom of the financial crisis, delinquency rates on single family homes was 5% vs 1% on MF apartments.  Additionally, vacancies in Class C and B (older properties where value-add syndicators play) remained steady at 8%.  We further mitigate risk by targeting proven assets where current owner is generating good cash flow (our due diligence includes auditing the trailing 12-month financials, bank records and tax returns). Additionally, lenders will not partner with us unless we have a good business plan, conservative underwriting (bank’s will underwrite the deal as well), have adequate insurance, and have an inspection completed by outside experts.

Do you invest your own investments? Yes. We’re confident in them to the point we go out and raise additional funds through syndication to leverage the size of deals we can invest in.

What if we have a downturn in the economy?  We won’t want to sell in a down market.  The goal would be to continue to cash flow and hold until the market is healthier to achieve a better price at sale.  Class B/C value-add properties tend to hold up much better in downturns because folks need a place to stay and rents are more in line with the market/service economy demographic that is typically still employed in downturns versus the higher paid class A renters whose jobs are more at risk.

What is the process & timeline?  We’ll let you know we have an investment available when we get a property under contract. We start the equity raise process with investors immediately and it runs concurrent to due diligence and the bank’s underwriting which takes about 5 weeks.  Typically, investors reserve their spot in the 1st week.  In the 5th week, investors review and sign the PPM and transfer funds to the escrow account.  Then we close on the property 2-3 weeks later.

Do you perform sensitivity analysis?  Yes. We model different scenarios to show our break-even point for profitability given a decline in occupancy or if rents drop below projections.  Most of our scenarios allow occupancy to drop between 80-90% to break even.  Third party data shows that in our target markets the worst vacancy levels were around 15% during the 2009 financial crisis. 

Can I invest using a retirement account (IRA or solo 401K)?  Yes. You can invest in real estate with certain retirement accounts. We utilize My Solo 401K and reference them on the website.  

What are the general partner’s fees?  The returns forecasted to you are post fees.  The most common fee is an acquisition fee based on purchase price and is paid upon closing.  This covers the general partner’s costs to find the deal and get it under contract.  The second most common fee is the asset management fee which is compensation for holding the property manager accountable, to ensure execution of the business plan, bookkeeping, and distribution of checks and K-1s.  The asset management fee is aligned with the investor’s interest as it is based on the property’s revenues.  Industry averages are 1-3 % for both fees.

What is a PPM?  The Private Placement Memorandum is required by the SEC and describes the offering, risks, includes the partnership agreement, investment summary and subscription agreement.  It is a lengthy legal document (approx. 100 pages) prepared by a syndication attorney.  The subscription agreement section includes basic information regarding purchase and percent ownership.  The risk section highlights just about every possible risk that could happen. 

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Did you know that all of the profits from my book You’ve Earned it! “How I Refused Anything Less Than Success And You Can Too” are donated to charity and helped to feed 78,247 people so far? By purchasing “You’ve Earned It!” in E-Book, Paperback or Audiobook, you will feed between 10-85 people. This is made possible through Feeding America and the Enterprise partnership with Tony Robbins. Thank you for making a difference.

Sincerely, Chris Roberts Managing Member at Sterling Rhino Capital.