6 Steps to a Successful Flip with a Self-Directed IRA [CHECKLIST]
As we have discussed in many recent articles, the opportunity to flip houses is strong in many markets. Factors related to the economy, demand from millennial home buyers and lagging new construction indicate this trend will continue even as many local markets start to stabilize.
Executing a successful flip in your Self-Directed IRA LLC or Solo 401(k) plan can do great things for the value of your plan, but like many things in life and investing, success takes planning and proper execution. Following are some of the key things to keep in mind if you choose to pursue this type of investing.
1 – Do your Research
Before you start writing offers, it is crucially important to understand your local real estate market. Where are homes in demand? What price range of homes are selling quickly? Are other investors having success flipping in certain parts of town? And of course, knowing what you can expect a well-rehabbed property to sell for in the specific neighborhoods you are considering is key. The end result of your flip will be a move-in ready home. Like any other product, you need to know what demand there is and what you can expect to sell for.
There are lots of public data resources that can help with this kind of research, but generally speaking, having a savvy realtor who is specifically familiar with home flipping will be your best source.
2 – Find a Property
“You make money when you buy.” This is a generally accepted fact in real estate flipping, and with good reason. The finished home you create will sell for a certain amount based on size and location. While you may be able to boost that amount slightly with a quality remodel, no amount of shine or savvy marketing will take a home too far beyond is true market value. This makes finding the right property critical.
You can source property in many ways, but the use of a self-directed IRA or 401(k) does limit your involvement in the process to some degree. You can certainly purchase at auction or from another investor who may be wholesaling homes. You can purchase through normal real estate channels as well. There are also many turn-key real estate operators that source discount properties and run the rehab for investors, and your checkbook IRA could go that route.
What you want to be careful of is not to be viewed personally as providing services to your plan, so running an extensive marketing campaign such as mailers or bandit signs and actively pursuing property leads personally would be a no-no.
3 – Know your Numbers
Thoroughly and accurately evaluating whether a property you find will make a good flip is one of the most critical steps in the entire process. This is why step one is so important, because it will tell you what you can actually expect to sell a finished property for. You then need to work backwards from there to ensure that the costs associated with holding, rehabbing, and selling the property, as well as the potential impact of UBIT taxation to your IRA or 401k will still leave a sufficient profit for your plan.
Many investors use the 70% rule, which stipulates that you should only purchase a home to flip if you can do so at 70% of its after repaired value, factoring for the cost of the rehab work. So, if you were going to purchase a home for $80,000 and rehab costs are expected to be $20,000, then you have to be able to sell that property for about $142,000 to meet the 70% guideline.
So, in addition to knowing what final sales price you can expect for a home, you also need to have a very keen idea of what the rehab costs will be. This is certainly something that is easier to do with experience, but you don’t necessarily have to have that direct experience yourself. You can consult with a skilled mentor or make sure you have a quality contractor on board early in the process who can give you a good idea of the rehab costs. Adding some contingency buffer such as an additional 10-20% of the rehab costs is always a good idea. In situations such as foreclosure auction properties where you do not have the opportunity to fully inspect, you might want to increase this buffer amount.
The bottom line is, if your plan pays too much for a property, it can turn out poorly.
4 – Scope of Work
If evaluating the numbers on a deal is the most important step to a successful flip, having a detailed scope of work for the rehab is a very close 2nd. Time is money, and the quicker you get your plan’s flip home fixed up and back on the market, the better. Having a clear plan for all phases of the rehab process will help you to keep on-task and on schedule.
Equally important, a good project plan will eliminate the potential for confusion between you and your contractors as to what level of work needs to be done. If you simply tell the contractor to paint a room, you will get what they think that means. If the result is less than you expected, then you are potentially looking at lost time and additional cost. If you specify what color, what finish, whether the walls and ceiling should be the same color or different, and whether the trim should be done or not, then you can expect to get what you asked for – both in terms of an accurate estimate up front and delivery of the service. This holds true for every room in the house and every phase of the construction.
There are a lot of good resources out there for creating a project plan, and the level of detail you choose will vary based on your experience, the relationship you have with your contractor(s) and the level of work the property requires. A general rule here, however, is that more detail is better.
Of course, not all project will go exactly according to plan, and you can pretty much expect to encounter at least a few hiccups along the way. But, if you have a good plan in place, it will allow you to much more effectively address the unexpected and adjust accordingly.
5 – Stage It
Once your contracting work is done and the home is nice and fresh, step back and appreciate what a nice transformation has taken place. When you stage a home for sale, a second transformation of almost equal magnitude occurs. That clean but empty space now becomes a welcoming home that someone can imagine living in.
Not all potential home buyers have the vison to imagine what they might do with the blank palette of an empty house. When you show off the potential of a space with light furnishings, some lights, and artwork, you make the home significantly more appealing to a much broader range of buyers.
Flipping houses is selling a product. Your product deserves to be well marketed, and that should include staging, perhaps a little work on curb appeal in the landscaping, and high quality photos for your listing. A well marketed home will attract a large pool of buyers, and may fetch a higher price as a result. It will certainly sell more quickly than a vacant home would.
Remember, you do not need to make the house look like it jumped out of the pages of a home design magazine or spend a bunch of money. A simple and sparse staging, perhaps just in a few key rooms can make a huge difference in the marketability of a property.
6 – Sell It
Yup, pretty self-explanatory. The payday for your IRA or 401(k) comes when the house is sold, so you want to do everything possible to ensure that day comes quickly. Work with a quality realtor familiar with the neighborhood you are selling in, and make sure they put a real effort into showing the home, not just listing it.
If there was good margin in your property, be aggressive and list it for sale slightly below what you think it’s true market value may be. This can ensure a fast sale, and may even bring in a multiple-bid situation if you can create something that is highly desirable, especially for first time home buyers.
If you plan to do multiple flips with your self-directed IRA or Solo 401(k), the project does not really end when the for sale sign comes down and the check is deposited into your plan account. As you plan for future projects, you will want to learn from what worked and did not work on this project so you can improve your processes going forward and be more effective.
Keep in mind, when a tax-exempt entity such as an IRA or 401(k) is engaging in a business activity on a regular or repeated basis, UBIT taxation will come into play. Be sure to check with your CPA to determine if this will be a factor, and to evaluate the impact of this taxation on the net return on investment for your plan.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
