Guidant Financial Group Blog

I understand from your site that flipping houses is permitted in a self-directed IRA. But I'm wondering - does the entire purchase price of the house, and the needed renovations, have to be paid in cash in full by the IRA?
-- Andrew (Boca Raton, Fla.)

The short answer is: Yes. It is possible to obtain a loan to purchase a property with your IRA; however, this must be a “non-recourse loan,” and all non-recourse lenders require that the property be income-producing (i.e., a rental property). Thus, if you are purchasing the property to renovate and flip, it will not qualify for financing.

Because IRS Code dictates that your IRA cannot benefit from you or your personal funds, you must pay for any renovations out of the account as well. This code is commonly referred to as the “exclusive benefit rule,” and it can be found in IRC § 408(a), § 401(a) and ERISA § 404(a)(1)(A)(i)).

It is possible to partner with other people and/or their IRAs, so this may be an option for you.

Bottom line: Unless you plan to partner with another party, you will need to have enough liquid cash in your IRA to purchase and renovate the property.

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