How to Use an IRA To Build Your Real Estate Business

Successful investment. Plant and coins on table.

By Greg Herlean

If you want to get into flipping houses, but you’re not crazy about the risks associated with a hard money loan, you might be interested in using your IRA to help you flip houses. You won’t have to borrow money from anyone but yourself, and you won’t have to split the profits from flipping with anyone else, either.

Now, I know what you’re thinking. “If I withdraw from my IRA to pay for real estate, I’m going to have to pay income tax on it. It sounds like a bad deal.” Stop right there. I wouldn’t ever steer you in a direction that would lead to tons of taxes and losses. There’s a reason they call me the money guy.

If you’re worried about losing money and emptying your retirement fund by withdrawing from your IRA, it’s because no one has clued you in to a pretty amazing real estate secret—your IRA can own real estate (and other assets, too). Without withdrawing any money or incurring any fines, you can have your IRA make the purchase for you.

Is Your IRA Self-Directed?

If your IRA is housed at one of the larger financial institutions, you will most likely only have the freedom to use it to invest in bonds, mutual funds, publicly traded stocks, or CDs. However, there are quite a few smaller institutions that offer self-directed IRAs. These allow you a lot more freedom with your investments. There is still a little bit of red tape left to cut through, though, before you cut a check for a property.

You see, there are laws in place to prevent IRA owners from using their IRAs to make investments that directly benefit them. This is called self-dealing, and it prevents you from writing a personal check for the property that your IRA is buying. Instead, you’ll have to do a trustee-to-trustee transfer and get your self-directed IRA trustee to write the check for you.

It’s a good idea for any flipper to build a relationship with a trusted CPA and/or financial expert. Your accountant can guide you through all of the tax rules associated with using your IRA to purchase properties. Staying within tax codes and avoiding any illegal practices will be well worth anything your CPA charges you.

The Benefits of Using Your IRA Instead of Borrowing Money

While it sounds complicated at first, a lot of people flip houses using their IRAs. If you do this right, you can use your IRA to purchase and flip one house while you’re waiting on another house that you financed with an investment partner to sell. This way, you don’t have to wait for one property to sell before you start working on another property. The more projects you have going continuously, the more money you stand to make. That’s not the only benefit of using your IRA, though.

Imagine, for a moment, that you’ve found a (potentially) beautiful house that you know is going to need a lot of rehab work. You also know that once the work is done, you’ll be able to sell it quickly and make a great profit, but you’re afraid of the time that the rehab work will take.

The longer your contractors take, the more money you stand to lose on interest for a hard money lender. Likewise, private investors and lenders aren’t going to be too excited about a property that’s going to take time to rehab and sell. This is exactly the type of project that IRA funding works well for.

Flipping houses is an interesting and lucrative business. The longer I work with Mike, the more we learn about ways to finance flip houses and how to make the most money flipping any property. Sometimes working with lenders makes sense, but sometimes getting creative with your IRA is the way to go.


About the author

Greg has spent the last 10 years focused on the growth opportunities and wealth accumulation through Real Estate vehicles. He has provided management direction, capital restructuring, investment research analysis, business projection analysis, and capital acquisition services which governed and impacted over $700 million in Real Estate transactions. Greg is also a much sought-after platform speaker on the topics of capital development, investment growth through use of self-directed IRA vehicles, and estate planning.

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