Can I use a SDIRA to do a fix and flip?

6 Replies

Can I use my self directed IRA to buy a property, rehab it, and sell it? I know that I should be talking to my IRA company for these questions but being that it is a Saturday, I thought that the next best option is to ask my fellow BP members. Thanks in advance!

Yes you can.

Yes. In fact, some say that it is actually more advantageous to fix and flip inside a SDIRA than buy and hold. 

For one, you do not have to pay capital gains tax since the investment is inside a tax deferred account. 

However, you can ONLY use money from your SDIRA to pay for repairs. You or any other disqualified member cannot do any work on the house. 

If you have enough money in the account to fund the entire purchase and rehab then it definetely a good way to invest. 

If you dont have enough money to buy and fix, your sdira can borrow from an individual,bank, or another sdira to complete the transaction. There are many rules to follow, but definitely you can do just about anything that you can on your own.

@Sandy Uhlmann

Yes, the IRA can purchase a home, have it repaired, and resell the home at a profit.

Do check with your IRA provider (and tax advisor) next week and ensure that you get a good explanation of the rules and exposure to UBTI taxation that such an activity can create.

You or a disqualified party to the IRA may not do any work on the property.

Flipping is a dealer activity viewed as a trade or business. If engaged in on a regular or repeated basis, the gains from such a business activity are taxable even to a tax exempt entity like an IRA or other non-profit - the reason being that the entity is competing with other tax-paying businesses. See IRS publication 598 for more details.

Even with this tax exposure, flipping can be very profitable for your IRA. If your net, after-tax return is better than other investments the IRA could make, then you have come out ahead.

@Sandy Uhlmann I agree with Brian, get your Plan Administrator on the hook for these questions. Gives you a little "insurance" if anything goes wrong!

You may want to turn it into a Roth somewhere along your investing path???

@Sandy Uhlmann

Brian @Brian Eastman  has a very good answer. If you are already in the highest tax bracket then it it almost always is advantageous to use your SDIRA especially if you do as Mike @Mike Hurney suggests turning it into a tax free Roth if it isn't one already. The UBIT is what makes it something you should discuss with your CPA/tax advisor. You should also look at other ways to structure deals to minimize or eliminate UBTI. GOOD LUCK ! 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here