Rehab-and-Flips in an IRA
Rehab-and-flips purchased at the right price, renovated with a reasonable amount of funds, and quickly sold for a profit can generate sizable, tax-sheltered income in your IRA. Many people are familiar with what is involved to renovate property, and they put their skills to work by investing in rehab-and-flips in a self-directed IRA.
Your IRA owns the rehab real estate, but you choose the property, determine improvements, and hire the people to perform the work. You and other disqualified persons are not allowed to perform that work yourself—but you can oversee the process to ensure it’s done correctly. So, if you have a knack for finding great real estate deals, these assets are worth looking into.
Tips for Investing with your IRA
- Rehab-and-flips in a self-directed IRA are titled in its name, and all expenses must be paid by the IRA; you cannot pay with personal funds and reimburse yourself with cash from the account.
- You can partner your IRA’s funds with other people or their IRAs to invest. Income and expenses are determined by the percent of ownership of each party.
- The IRA cannot purchase an asset from a disqualified person or entity.
- You must hire a non-disqualified, third-party to perform all renovations and work on the property.
- Your IRA can use a non-recourse loan to finance a purchase. But these loans are more complex than a typical loan. Consult an appropriate professional for help to ensure your investment is compliant with the IRS.