Flipping Land Through A Self-Directed ROTH?


  • I just passed the SIE exam and was simultaneously pursuing a deal when I thought of buying the land through a self-directed IRA. Does anyone have any experience in this area that they could speak to?

    I haven't looked into all the details, but this is what I was thinking.

    Obviously, we enjoy the benefit, just as in any Roth IRA, of not reporting any capital gains, i.e., all capital gains grow tax free. Where the real benefit is seen, however, is in avoiding many of the drawbacks associated with owning real estate in an IRA. IRA’s require purchases to be made in cash, without any use of margin, preventing two of the largest benefits of real estate ownership: the use of leverage, and, therefore, since mortgages are off the table, tax-deductible interest payments. Additionally, all “ expenses, repairs, and maintenance costs must be paid with IRA funds, and you must pay others to do them and manage the property” (Investopedia). However, R.E land flips, if small enough (only worth $5,10, or $15k), are unaffected by these restrictions. No leverage is required, the deal is small enough to be purchased with the IRA balance, and no expenses repairs or maintenance is required from the time of purchase to sale.

    I guess the real question is what are considered "expenses" here.
    What do you think?

  • LIM

    Thomas Gray Stokes I’m actually in the process of setting up an IRA/LLC for my self-directed Roth IRA so I can have checkbook control, which will make flipping land out of it easier. Haven’t done any flips out of my SDIRA yet, but have researched it a lot and talked with an attorney who is well-versed in SDIRAs. Once I get some capital back in my account from other investments, I’m going to try a flip.

    The expenses that would need to be paid by the IRA are the same expenses you normally incur during a land flip...closing costs, hiring a photographer, property taxes that may come due, HOA fees (if any), realtor commissions, flat-fee MLS listing, etc. As to your comment about doing a deal “if small enough,” the only limit to the size of the deal is how much money you have in your account. As long as you have enough in your SDIRA to purchase the land and pay for all expenses, the size of the deal doesn’t matter.

    One thing to be careful of is to make sure you don’t do too many flips out of your SDIRA in a calendar year. IRAs are supposed to be for investment income. Do too many flips and you are seen by the IRS as running a business out of it, which triggers UBIT. “Too many” isn’t very well defined, but I’ve heard it’s best to keep it under 3 in a year.

    The Directed IRA podcast and website (directedira.com) have a ton of useful info on self-directed retirement accounts.

  • LIM

    Linda Hastings said in Flipping Land Through A Self-Directed ROTH?:

    One thing to be careful of is to make sure you don’t do too many flips out of your SDIRA in a calendar year. IRAs are supposed to be for investment income. Do too many flips and you are seen by the IRS as running a business out of it, which triggers UBIT. “Too many” isn’t very well defined, but I’ve heard it’s best to keep it under 3 in a year.

    Good tip, I didn't even know that. Thanks for sharing!

    I wrote a blog post on this subject several years back, you can see my experience with it here: https://retipster.com/self-directed-roth-ira-real-estate/

    I was using Equity Trust at the time, but have since moved to Quest, simply because they made it easier to invest in farmland in Panama.

    It's not terribly difficult with vacant land deals (and I didn't even have checkbook control at the time). There isn't a ton of movement outside of the buy and sell transaction (maybe property taxes, depending on how long you own it). All in all, it's a pretty good fit with the nature of how most land deals work.

  • LIM

    To clarify, checkbook control is not necessary to be able to flip in a self-directed account. If you don’t have it, you just have to go through your custodian any time you need funds for something or need to sign. Part of my reason for adding checkbook control is more flexibility with some other investments I also want to make.


  • Thomas Gray Stokes I can’t speak to the question directly but if interested, I’m looking to partner with folks and I can bring the funding to the table.


  • I have a self-directed 401K LLC with checkbook control. It is much easier than constantly contacting the custodian. Also, you have access to all investments, such as crypto, stocks etc. You still have to make the initial contribution to the custodian, which is then transferred to your LLC bank account. I am using it for cash flow properties that I hold which is cleaner in my opinion. >> Short-term land flips, consulting, and other business I am using the LLC Scorp and operate as a business. Furthermore, the LLC Scorp can have a solo 401K and you can stuff it with Employer and Employee contributions while offering a strong tax mitigation strategy. >> I agree with the Roth ira strategy too, especially if the property is going to have massive appreciation.

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