Same sponsor, same deal: 8 percent preferred equity or a 10 percent loan inside an IRA

Say a sponsor capitalizing a value-add deal offers two ways in for the same $150k inside a self-directed IRA. Preferred equity at 8 percent current with a share of the upside, or a second position loan at 10 percent flat, interest only, two year term. The equity has the better headline over the life of the deal if the business plan works. It also sits behind roughly 60 percent senior debt, and the debt-financed share of the income drags unrelated business income tax into the account, filed on a 990-T with a threshold near a thousand dollars and trust rates that climb fast. Filing and preparation cost is a real number before the tax itself is even counted. A rough estimate haircuts the 8 percent by a bit over a point and a half once the tax on the levered portion and the return filing are included, though that is arithmetic on assumptions and any specific account needs a CPA to run the actual return. The loan produces interest income. Passive, outside the unrelated business tax, no 990-T, no filing cost. Ten percent arrives as ten percent. It also caps at ten percent forever, sits behind a senior lender who can wipe the position out in a workout, and recovery in a bad outcome depends on remedies that vary by state and on what the intercreditor agreement actually permits. So the debt pays more today after tax and gives up all the upside, while the equity pays less after tax and might pay a lot more at exit. The assumption doing the real work in that comparison is how likely the business plan is to hit its upside case.