Maintaining a constant corridor between the death benefit and cash value prevents the product from becoming an Modified Endowment Contract which loses its tax advantage.  

Is it better to move the money to his existing retirement account and let the additional $300K grow at 6 - 7% (which is what they can achieve) where we could then borrow the other pre-taxed $600K at anytime to purchase real estate for flipping OR move the $300K to a self directed IRA account.Self Directed IRA would require setting up an LLC for it $1,495 plus a $45 per quarter management fee and we would not be drawing any interest off of it but would then be able to self direct investing the money in real estate and at closing the funds (profit) would be written to the LLC and deposited back in the fund account to prevent taxing.We could then take money out as needed (taxed) under his name (without penalty) and only pay ordinary income tax on his tax form.

If so, it will prevent you from having title seasoning issues when you decide to refinance and reduce your initial out of pocket costs while you're making repairs.

What are some ways to prevent this from happening?

Do you have systems & budgets and sources of income in place to prevent financial difficulty in the future?  

Managing the process in this manner should prevent spending monies unnecessarily. 

Here's the thing, my credit will prevent traditional bank help to secure a house and rehab money until December 2015. 

Indianapolis has a fairly new law that prevents assessors from making arbitrary assessments.

Linked: http://www.civilrights.org/fairhousing/laws/federal.htmlFamilial status as a protected class is intended to prevent you from denying families the right to rent, so I'm not sure how that would go using it the other way.

Here in VT there's a special "Land Gains Tax" specifically designed to prevent people from buying blocks of land and subdividing it immediately.Hope that helps.