The reality is, if it is NOT a RESPA transaction there is no federal prohibition, so you have to look to each state.

The biggest problem they had was not knowing how to control access to themselves.Fair Housing prohibits discrimination on familial status.

mhmm so than if the house sells before you have the new house framed up and (not sure about inspection timings and requirements in your area) it takes a year to complete it than where will you be sleeping... i guess if you had your DL adressed there and you stayed at your parents or a friends place you would be technically living there because they don't know if you have a mobile home parked there or not unless the area specifically prohibits it.... its very possible you could save the money on the taxes without ever moving into the new home but I'm no lawyer or tax specialist so you shouldn't take my word for it and it may not exactly be the most legal or ethical way to do so...

The Self-Directed IRA and Solo 401k Similarities Both were created by congress for individuals to save for retirement;Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;Both allow for Roth contributions;Both are subject to prohibited transaction rules;Both are subject to federal taxes at time of distribution;Both allow for checkbook control for placing alternative investments;Both may be invested in annuities;Both are protected from bankruptcy creditors;Both are prohibited from investing in assets listed under I.R.C. 408(m); andNeither may be directly invested in your own business startup  The Self-Directed IRA and Solo 401k DifferencesIn order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;To open a self-directed IRA, self-employment income is not required;In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (self-directed IRA LLC) must be utilized;The solo 401k allows for checkbook control outside the LLC;The solo 401k allows for personal loan known as a solo 401k plan.If you borrow from your own IRA, it will be deemed a taxable distribution;Unlike an IRA, a Solo 401k can invest in life insurance;The solo 401k allow for high contribution amounts (for 2015; the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);The solo 401k business owner can serve as trustee of his or her solo 401k;The self-directed IRA participant/owner may not serve as trustee or custodian of his or her IRA; instead, a trust company or bank institution is required;Unlike an IRA, generally when distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian, generally by May of the year following the rollover/transfer.Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;Pre-tax IRA contributions on reported on line 32 of Form 1040;Pre-tax solo 401k contributions are reported on line 28 of Form 1040;Roth solo 401k funds are subject to RMDs;A Roth 401k may be transferred to a Roth IRA--from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth 401k RMD requirement;Roth IRA funds are not subject to requirement minimum distributions (RMDs);The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; andAt termination, the self-directed IRA is only required to file a form 1099-R.

Just my opinion (part time eXp-er): if it isn't cost prohibitive and doesn't detract from your goals, then why not.

Anything can be fixed but many are cost prohibitive. 

Furthermore, depending on the relationship of his family member that may lend on the project, he could possibly enter into a prohibited transaction.To me, a cleaner way of doing the transaction would be for you to pay cash for the property, use it for collateral, and have the IRA loan the money for the rehab in a 1st lien position.

Since it prohibits applying rent credits to the purchase price, I'd say it is applying itself to lease option contracts in spades.And in the case of matters as important as this, I wouldn't take an article or a posting on BP as your source, my own posting included.

I can't find where they prohibit such construction. 

Do the boards generally have rules prohibiting letting other users use your login/password?