Newbie, How can I use A $65k IRA to invest in flipping ?

15 Replies

Ive been recently taking in a lot of info.

Im looking into ( researching about ) a HELOC. I think I have around $100K equity in my house.

I found out today that I can transfer my old 401K to an IRA. $65K

So, Im starting to get lost. I want to buy and flip and buy and hold.

Any suggestions on how to use these ?

Let me add that I dont have a job now, my cash reserves should be left alone for now.

I can use a credit card ? My credits great.

@Tom La Rosa   I suggest a solo 401k instead. Since you are not working you could start a business. From that you can establish a solo 401k, and transfer the money into it. You could use that money, plus money from a non-recourse loan to invest. That does not effect or depend on your credit. The solo 401k is not taxed when you use a loan, whereas a SDIRA is.

I can personally recommend Sense Financia - www.sensefinancial,com, @Dmitriy Fomichenko was a huge help in setting up mine.

Tom thank you for the info Tom thank you for the info it was very helpful to me also working for self and looking for a great way to use some of my income to use for flip, is there a max that you can put in per year on this account ?A greg way to offset my tax and use for flip to fund it back from what I am reading from you

@Ahmed Porter The max is $57,500 annually, but much of that is profit sharing and can only be contributed at a rate of 20% of profits. The individual limit is $17.5K if under 50, $5K more if over 50. But, your wife can also participate if part of the business, and can contribute the same amounts. That allows you to shelter 40% of profits after you each contribute your individual maximum ($35K total). And the solo 401k allows you to put part of it into a Roth component, up to $23K each.

Tom, 

We'd need to know more specifics about your situation obviously.  If you invest with your 401k you don't get the profits and can't live off them- the profits would have to go back to your 401k.  So that doesn't help you eat this week.   Now you can roll that retirement account into a solo401k and you can borrow 50% of your 401k balance up to 50k (in your case 32,500).  You could use this money to invest in real estste and flip houses and then keep the profits.  You would, however, have a payment to make back to your 401k each month since you're borrowing the money.  I'm assuming you're hoping to make money to live off of since you don't have a job, but I could be wrong..  Again, more info would help.  

Bryan A., Carolinas Revitalization, LLC | [email protected] | 704‑905‑6510

After thinking about your situation more (and not being able to find the edit button for my post-- is that feature gone now?), if you're interested in the borrowing provision of the 401k but want to invest for profits you can enjoy and live off of today, you could contact the current custodian of your 401k account.  They may be ok with you borrowing a portion of it and you could avoid the rollover and potentially higher fees of a solo 401k!  

Bryan A., Carolinas Revitalization, LLC | [email protected] | 704‑905‑6510

@Tom La Rosa

I work at a bank, and in order to tap Into the equity of your property we require job. If your self employed, we would require two years of tax returns. Now if you already have the line of credit established, having a job makes no difference. Maybe some banks are different and won't require any w2 buy just wanted to let you know it. might be a little tricky to get a heloc without one

You can open an IRA account with Equity Trust and then use the IRA to invest in Real Estate. There are a few rules to be aware of but they are really good at showing you how to do it and all the tax benefits available.

If you need that 65K to make money for you to pay bills it will not work because all profits must be put right back into the IRA. However if you want it to grow it would be a great option.

@Tom La Rosa  

Since you don't have a job it might be a challenge for you to get a HELOC, most lenders will require you have a stable source of income before they will lend you. Even if you have a HELOC, you would be using borrowed money for investing; you need to be extra careful when using 100% leverage.

Starting a business so you can have a source of income is a great recommendation by @Walt Payne . This will also enable you to qualify for a self-directed, trustee-managed Solo 401k, which has several advantages over SD IRA including the ability to take the loan from it.

Also Tom, if you start flipping houses out of your retirement account, this most likely will be classified as running active business and your IRA or 401k will have to pay UBIT (Unrelated Business Income Tax). You would be better off doing flips under your own name and use your retirement funds for other options, such as funding someone else's flip as private lender or invest in trust deeds. In other words, use your retirement account as a bank and lend to others.

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

@Dmitriy Fomichenko , @Christian Bors

@Brian Kipke , @Bryan A. ( I cant get the links to work ?)

Thanks a lot for your replies. 

So much to learn ! My experience is in construction, all of this is new.

For now, using my 401K or IRA, I would want to keep the returns. Not have to put them back into the 401K.

Starting a business ? an LLC or something else ? Where would I begin ?

My 401K is with Wells Fargo, from a job I had years ago, I spoke with them the other day and they were helpful, I just dont know much about Im talking about.

Right now, I have 2 options for investing / flipping

1- A hard money lender or private money lender

2- A family friend who is a loan broker that is interested in working together, but the more I learn, the more I realize how much I dont know. He wants to secure the funding, and I pay for and complete the remodel. We split the profits. ( Im not sure how the split should go. He is successful at what he does, but I get the feeling that he doesn't have experience flipping. )

In either situation, I have to come up with money. I also need to get my affairs in order and make sure I dont screw up and get taxed too much.

Sorry if Im asking the same question again. Im a bit overwhelmed.

Any thoughts ?

@Tom La Rosa  

I think your primary objective should be figuring out how you are going to make a living, that is where suggestion about starting your own business comes in. I see that you are licensed electrician, so starting in this field would probably will be easiest. You don't have to set up an LLC, it will be easier just to start as a sole-proprietor. You can always establish entity at a later time, the main purpose for that would be asset protection. Talk to experienced tax specialist about which entity might be best for you. If you go sole-proprietor route I would suggest you obtain a Fictitious Business Name (or DBA - doing business as) so you can start building brand for your services.

Being sole-proprietor will enable you to qualify for a Solo 401k and then invest your retirement funds. But this is completely separate issue. Just as @Bryan A.  mentioned earlier, investing your retirement funds would not help you financially now as all the gains, profits and the cash flow from your 401k investment must go back to your retirement account. So this is a secondary issue, but it is also important one. While you can't use those funds in your 401k now, you still need to invest them wisely so that your retirement account can grow.

Find a mentor or coach to help you on your investment journey. There are many veteran investors to help you navigate through these waters. 

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

You can start flipping houses for a tiny fraction of 65K. Worry about holding when you have income and profits coming in

@Mike Hepburn , thanks for your reply.

What do you recommend ? Hard money loan ?

How did you / do you do it ?

Hi

Flipping actually means flipping contracts or assignment of contract. Unless you are doing rehabs then reselling. It that case you will need all your money or loans.

For assignment you just mark up your sale price put down deposit, pay some closing costs

collect a finders fee at closing. There are lots other things to do, but they are not costly. If you want to find private deals you have to do marketing and closing. If you can get away with a $500.00 deposit, shouldn't need more than 2K all of which should come back at closing. Sorry have to write a book for whole story. I heard there some good pod casts and books on here under resources.

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