Buying and Rehabbing a distressed property using SDIRA funds?

Question

Hi Experts,

Can I buy a distressed property and rehab the property using Self directed IRA funds? I plan to rent it for a few years and sell it depending on the market conditions in the future. Is this below scenario possible?

Example -

Funds in SDIRA - 500K

Distressed property - 300K

Rehab Costs - 150K

Funds left in SDIRA - 50K

Chris Seveney · Answer

@Sri Voodi

As long as you do none of the work on the property and hire a contractor - that’s one caveat to make sure you are compliant

Account Closed · Answer

Hey Sri, while the deal sounds promising I would not recommend going "all in" on on deal from your self directed IRA

Ashish Acharya · Answer

Yes, you can use your Self-Directed IRA (SDIRA) funds to buy and rehab a distressed property, but strict rules exist. You can purchase the property for $300K and cover the $150K rehab costs with your SDIRA, leaving $50K in the account. However, all expenses and income must flow through the SDIRA, and you can't personally benefit from the property—meaning you can't live in it, use it, or even do the rehab work yourself. Third parties must handle everything, and any profits from renting or selling the property must go back into the SDIRA. It's a great strategy, but make sure to follow the rules closely to avoid any penalties.

Brett Synicky · Answer

You’ll want to take a look at setting up a Checkbook IRA. The custodian is bypassed and you can make payments and deposits into a checking account owned by the retirement account. No delays, no red tape, no custodian transaction fees each time you perform a transaction. Plus you can sign on behalf of the retirement account instead of the custodian. It’s by far the best way to set up an SDIRA, especially when it’s investing in real estate on account of the amount of transactions done regularly.

Jamie Dietz · Answer

It's not a big issue but just be aware that it can take a few days to get your contractor paid. For example, if your contractor is ready for payment/draw, you schedule an inspection 2 days out, then your request payment from the IRA which can take 2-3 days to receive. Maybe a week has passed which may slow down the process. Just make sure you manage expectations and it can work out just fine.

Sri Voodi · Answer

Diyan,

I haven't even set up SDIRA yet. I was contemplating if such a scenario is allowed or not. I was aware that you can buy a property but wasn't sure if SDIRA allowed rehabbing. Thanks for replying.

Thanks,

Voodi

Dmitriy Fomichenko · Answer

The IRA custodian doesn't define what you can and can't do. The IRS sets the rules, and they are available on their website:

https://www.irs.gov/retirement-plans/plan-participant-employ...

Diyan Yap · Answer

Yes, you can do SDIRA buy a distressed property and rehab the property.
BUT be aware of "Prohibited transactions" and "disqualified person".
Where did you set up your SDIRA ?
Do they give you documents what you can DO and DON'T .

Sri Voodi · Answer

@Zachary I would be interested to k now why you would not recommend all in.

Thanks

Voodi

Denice Contreras · Answer

Hi Zachary,

Why would you not recommend going all in with SDIRA funds? What might be the drawbacks?

Denice

Buying and Rehabbing a distressed property using SDIRA funds?

Buying and Rehabbing a distressed property using SDIRA funds?

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