How to Flip Real Estate in a Self Directed IRA—There's More Than One Way

How to Flip Real Estate in a Self Directed IRAThere's More Than One Way

Investing in real estate in a self directed IRA is something that I get a lot of questions about. The most common question is whether real estate is a permissible investment by the IRS. Let's just get this one out of the way. Yes, it is and for good reason.

In 1974, ERISA was set up by the Social Security Administration. This piece of administration set up the initial guidelines for both the conventional IRA and a self directed IRA. The truth of the matter is that Uncle Sam wants you to plan for retirement. Either they need to come up with incentives that will help you plan for your retirement or they will more than likely have to help finance your retirement in some other way.

So, real estate in an IRA is set up to be a win-win situation for everyone. You can save money on taxes either in the beginning with a traditional IRA or pay the taxes upfront with a Roth. Either way, Uncle Sam gets his money and the added assurance that the general public will have more personal funds as they go into retirement.

The Basics of the Real Estate IRA

Real estate is a secured asset by the IRS. A self directed IRA has a variety of ways to make money using real estate such as:

Single-family homes

Commercial real estate

Raw land

Duplexes and apartments

Condos and townhomes

Mobile homes

Partial notes

Real estate notes

Second mortgages

Real estate purchase options

Tax liens

Flipping Real Estate

Typically, when we refer to flipping real estate in a self directed IRA, the first thing that the investor might think of is taking a less than desirable house, making it pretty, and selling it at a profit. Some investors specialize in other kinds of "flipping" though.

Contract Flipping doesn't require the buying or selling of an actual property. The buyer will purchase an option from a developer at the beginning of a project to purchase a property at a reduced cost using "earnest money." If the investor exercises their option to buy, they can resell the property before closing at a higher price and make a profit without ever actually owning the property.

Escrow or Double Closing occurs when the owner signs over a property deed to a dealer. The dealer will sell the property at a slightly higher price and the owner receives their payment at less than the value of the property and the dealer collects a share for negotiating the deal.

Check with Your Passive Custodian First

As always, it's important to follow all the rules and regulations of real estate in a self directed IRA. Your passive custodian is not there to advise you on good investment options, but they are there to help ensure that all of the paperwork is followed accordingly and no rules or regulations are broken.

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