A self-directed IRA (SDIRA) allows investors to leverage retirement funds for house-flipping opportunities involving purchasing, renovating, and selling real estate for profit. This practice offers several tax advantages, including tax-deferred growth, which defers taxes on earnings until distributions occur during retirement.

House flipping using self-directed IRAs may offer greater returns than traditional IRAs, often limited to more conservative investment options like stocks and bonds.

Becoming adept at using SDIRAs for home flipping requires a full understanding of IRS guidelines, avoiding penalties for self-dealing, being vigilant against Unrelated Business Income Tax (UBIT), and much more.

Continue reading about SDIRAs to flip houses, including its pros/cons, rules, tips on purchasing the property, prohibited transactions, and why this investment strategy may be an excellent addition to your retirement portfolio.

Real Estate Investing

Real estate investors can purchase property with the intent to refurbish and rent, improve on land for profit, or flip properties.

Flipping houses is an investment strategy where a buyer will purchase a property to fix and sell it for a profit. The intention is to buy low and sell high to get the most out of your purchase.

Investors buy houses of low appreciation and make improvements to make more money than they put into real estate. Buyers look for houses in a growing neighborhood that can be fixed up quickly and resold. Usually, the improvements made to the home will include a flashy appearance to sell the flipped property as soon as possible.

After making improvements, the house’s value rises, and real estate investors can get a significant return on their investment.

So, how can you go about finding the best property to flip?


Consult with Horizon Trust

5 Steps to Flipping Homes with an IRA

1. Have the Cash: To purchase real estate, the first step is to have the right funds to do it. You should have good credit, a decent amount of cash, investigate money lenders, and have the option of loan money open to you.

Of course, if you decide to purchase the home using your self-directed IRA, all money from the sale will go directly into your IRA fund. Remember, using your IRA means all money for improvements, upkeep, and taxes must come from your retirement account. If you have the cash in hand, you can move to the next step.

2. Watch the Market:  Be careful when and where you purchase your property. Before putting your money down, determine if buying is right based on the value. Is the housing market up or down? If you aren’t sure, consider hiring a real estate agent for help. The key to successful house flipping is to see if the investment will make you money.

3. Inspect and Evaluate the Property: The last thing you want to put your hard-earned cash into is a money pit. Look at what improvements need to be made on your potential property buy.

The purpose of flipping a home is to gain profit. If you end up spending more than the house is worth, you will end up losing money. Find out what needs to be done, make a budget, and decide if the price is right.

4. Make Smart Improvements: The house, of course, must be livable. Refrain from sinking your cash into something that will take more to fix than it will cost to sell.

When you make improvements on your property, it’s a good idea to make changes to add value. Fixing kitchens and bathrooms is an easy value boost.

Improving floors, cabinets, and other house needs can increase the price. But remember, you must outsource the work if the house is owned by the SDIRA.

You’re not allowed to work on the property that your account owns. Try to make smaller, less costly improvements to make the house look better and entice customers to purchase your property.

Be mindful of how much you plan to put into any modifications. You want the place to look good, but spend your money wisely.

5. Check out the Area: The final step to selecting a potential home to flip is checking out the area. What is the real estate market like? Are houses being bought left and right? What is the cost of a home in that area?

Location is very important when selling a house. If it’s in a good neighborhood, has a decent value, and won’t cost much to fix up, you may have found the perfect home.

SDIRA Home Flipping Rules and Prohibited Transactions

Here is a short list of SDIRA flipping real estate rules and prohibited transactions you need to know if you’re considering home flipping with your self-directed IRA.

Ownership Percentage.

When partnering with others to flip a home using your SDIRA, contributions by each partner must align with their ownership percentage. Proportional ownership is a fundamental principle of SDIRA for house flipping.

Personal Use.

SDIRA rules dictate that an acquired home or property cannot be utilized for personal purposes. Both personal expenses and covering property-related costs within an SDIRA are prohibited transactions. Such use could jeopardize your SDIRA’s tax-exempt status.

Dealing with Disqualified Persons

Selling an SDIRA-owned property to friends or family members often falls under the self-dealing category and is prohibited. Similarly, SDIRA investors cannot acquire properties from disqualified individuals using their funds.

Short-Term Flipping.

Repeated short-term flipping activities may signal a focus on short-term profit instead of long-term retirement investment. The IRS might impose Unrelated Business Income Tax (UBIT) in such instances.

We recommend consulting a Horizon Trust associate to stay informed about SDIRA house-flipping rules and prohibited transactions

Pros and Cons of Using a Self-Directed IRA to Flip Homes

Here are the pros and cons of using a self-directed IRA to flip homes:


Tax-Advantaged Growth. Profits generated from your home-flipping activities have the potential for tax-free growth. This means your earnings can grow tax-free or tax-deferred until you start taking distributions during retirement, allowing your investments to compound more efficiently.

Diversification. Engaging in house flipping within a self-directed IRA enables you to diversify your investment portfolio beyond traditional stocks and bonds. This approach offers the potential for higher returns. SDIRAs provide an excellent opportunity to explore higher-risk, higher-reward investment opportunities like precious metals, cryptocurrency, and real estate.


Unrelated Business Income Tax (UBIT). If your property flipping activities exceed a certain threshold, you could be subject to Unrelated Business Income Tax (UBIT). This tax may reduce your overall profits.

It’s essential to remember that income generated through your SDIRA should be closely linked to retirement savings. Frequent profit-taking before retirement can raise concerns with tax authorities.

Limited Funds Access. Remember that real estate with a self-directed IRA is a retirement vehicle. Consequently, profits earned from property flipping can only be withdrawn without penalty once you reach retirement age. If you encounter personal financial needs before then, your property flipping profits may provide limited liquidity.

Risk Vs. Reward

Before diving headfirst into real estate investing, weigh the risk against the reward.

Determine how much you will be willing to devote to this project: time, money, and patience. The goal is to put in the effort to sell the property quickly. Consider all possible ups and downs:

  • How long will this property sit?
  • Will anyone buy it?
  • Will you end up selling for less?
  • Will you be forced to rent the property?

These are all valid questions to contemplate before investing. If the risk is worth the reward, and you have the skills and knowledge, you can make bank on flipping homes.

Balancing Your Real Estate Portfolio

We recommend investing a set percentage of your real estate deals within your IRA and funding your next house-flipping opportunity using SDIRA accounts belonging to others.

Tax Advantages. By investing 25% of your real estate deals with your IRA, you can create cash flow for retirement and never pay taxes on a quarter of your earnings. The more you invest within your IRA up to the maximum contribution limits, the more take-home pay you’ll have and the less you’ll pay in taxes.

Using Someone Else’s SDIRA to Flip Homes. One often overlooked strategy is using someone else’s SDIRA to flip houses. This approach provides quicker access to capital, spreads the risk around, and leverages the SDIRA owner’s expertise in the overall real estate market and local property trends, resulting in better project and risk management.

Outside of risk sharing, the other SDIRA owner may also be an accredited investor with significantly greater financial backing than you. Plus, pooling resources from multiple SDIRAs can increase your total capital, resulting in larger real estate deals with proportional ownership among all participants based on their contributions.

Are you interested in flipping homes with your IRA? Start making money today and try your hand at flipping homes. Contact a trusted Horizon Trust custodian today.


What types of real estate properties can I invest in for house flipping with a Self-Directed IRA?

With an SDIRA, investors can take advantage of various real estate properties, including single-family homes, condominiums, townhomes, multi-unit properties, fixer-uppers, and even distressed properties like foreclosures. Among these options, fixer-uppers stand out as a favorite due to the potential for value-boosting renovations that lead to substantial profits upon sale.

Are there any restrictions on how quickly I can flip a property using a Self-Directed IRA?

No, there’s no set time requirement for property flipping using an SDIRA. However, engaging in excessive flipping within a short period could raise red flags with the IRS, potentially leading to UBIT.

What are the tax implications of house flipping with a Self-Directed IRA?

Using a self-directed IRA for house flipping lets you capitalize on tax-deferred growth. Profits from property sales can grow tax-free within the IRA until distribution.

Engaging in frequent property flipping might trigger unrelated business income taxes. UBIT is applicable when the income generated isn’t directly linked to the IRA’s primary purpose of retirement savings. A tax professional can provide expert guidance on exceptions and applicable thresholds.

Can I partner with others to flip properties using a Self-Directed IRA?

Yes, partnering with others to flip properties using an SDIRA is possible. However, specific guidelines must be adhered to.

These include avoiding prohibited transactions between your SDIRA and disqualified persons, ensuring each partner’s contributions align with their ownership percentage, and making joint property-related decisions in line with ownership percentages.

Additionally, generating income through proceeds not part of retirement savings might subject you to UBIT.

Are there any penalties or fees associated with house flipping within a Self-Directed IRA?

Yes, various penalties and fees are associated with house flipping within an SDIRA. Examples include penalties for prohibited transactions, unrelated business income tax, early withdrawal penalties, excess contributions, and non-recourse loan fees.

In addition to these, you’ll also incur the standard administrative fees charged by the custodian or administrator of your account. Legal and professional fees might come into play in complex investment situations, necessitating expert-level guidance to navigate.