Should I use my IRA for flip and Appraisers and insurance reps MN

[Jeremy Karja]

I am using a HELOC and possibly my IRA to fund my first FLIP. My question is would I have to pro rate the amount I used in my IRA out of the profits and stick it back in my IRA or how does that work with flips and splitting the money. I work with IRAs everyday but not when it comes to real estate. If the IRA is going to limit the income I can take from the gains then I would rather use hard money for the remaining balance.

Also, any recommendations for the state of Minnesota for Insurance reps and appraisers?

Thanks BP.

Jeremy

[Brian Eastman]

@Jeremy Karja

IRA money is not suitable to the plan you are discussing.

While a self-directed IRA may be invested in real estate, everything must be done at arm's length and exclusively for the benefit of the IRA. There can be no direct or indirect benefit in either direction between the IRA and a disqualified party - which includes you, your spouse, lineal family, or entities owned by lineal family.

While there are those out there promoting on the internet that you can "partner with your IRA", doing so is complex, limited to very rigid situations, and is not risk free from severe IRS penalties.

When an IRA invests in real estate, all costs must come from the IRA and all income flows to the IRA. This is not capital that YOU can use to assist in funding YOUR deals.

Additionally, IRA's are designed for passive income like rentals, interest on notes, dividends, etc. Flipping houses is a business, and if a tax-exempt entity like an IRA engages in a business on a regular or repeated basis, there are some pretty steep taxes (UBIT) paid to level the playing field for tax-paying businesses.

While an IRA is not necessarily the route for your intended use, there is a lot of potential to increase the security and returns your IRA can generate by investing in real estate and notes. It is simply diversification for the IRA.