Compass bank will write a loan for first time buyers with as little as 3% down, and firstbank will do IRA loans, so I don't see why you couldn't get a loan from someone, I'm just not sure who.

You also have to consider UDFI (unrelated debt finance income) which is generated when an IRA borrows money to purchase real estate.

Can the person pay the downpayment from a self-directed IRA if they themselves will never live in the property, and their equity goes back into their IRA upon sale of the property in the future?

I work with one of the foremost experts on IRAs and tax law in San Diego if you want his information and really are considering purchasing real estate in the name of your IRA.

However, you need to set up an account.The children may be eligible to put the money into an IRA/Roth IRA account.

For example, you would evaluate IRA versus Roth IRA based on your exit plans. 

I have started research Self-Directed IRA’s, but because I will be an employee of my startup, that option is out.

A lot of forum members are very knowledgeable in their respective fields related to real estate investing, whether that is real estate sales, wholesaling, flipping, rentals, lending, self-directed IRA and Solo 401k investing, or tax and legal guidance.Discounts on some products and services are offered to BP members: https://www.biggerpockets.com/perks/proIf you haven’t been to it already, you might want to check out the BP blog: https://www.biggerpockets.com/blog/The site has quite a few tools that can be helpful for new members.

They encourage you to set up a self directed Ira, perhaps that is a service they provide for you which would make them a custodian which would make the rest of the services they provide illegal or a violation of their licensing.  

Diligence, diligence, diligence...As far as an IRA provider, I would recommend working directly with a professional custodian or IRA LLC facilitator.