Posts

Flipping ‘Contracts’ With Self-Directed IRAs?

Assignment of ContractWhat you have heard about assignment of a contract

You’ve heard all kinds of different accounts of what this is called. It’s called flipping contracts. It’s called assignment of contracts. It’s called straight options. It’s called wholesaling and any other name that means getting involved with something quickly and getting out of it quickly.

Can an assignment of a contract be done within a Self-Directed IRA and/or a Self-Directed 401(k)?

One of the misconceptions about Self-Directed IRAs as it relates to investing in real estate is that it is so different from what you would do in your own world. The truth is that you can do this within a Self-Directed IRA just the same as you can do it outside an IRA.

A real life case study of a successful client who used his Self-Directed IRA to fund the assignment of a contract

One day, our client, David G., said “Can I do assignment of a contract with my Self-Directed IRA funds?”, and we said “Of course, it’s like any other transaction.” David decided to go back to using some wholesaling techniques that he uses on an ongoing basis.

                Assignment of a Contract – The Purchase

The contract purchase price for this particular property was $157,500. The deposit or binder, depending on what you call it, was $500. David G. entered into a partnership with a new partner for 50% interest. This time the partner was a Solo 401(k), also one of our clients, but nevertheless it was a Solo 401(k).

They closed using Short-term seller financing.

Assignment of a Contract – Assignment of a Single Family Home Sale to a Wholesaler

David G. aggressively marketed the property to retail and wholesale buyers. Because he did do his homework, he did get a good deal. He and another wholesaler agreed on a price of $176,500 and paid in cash to facilitate the double closing.

The wholesaler immediately sold the property to a builder. The builder brought the cash in and it was utilized to pay off the original seller of the property that closed using very short-term – meaning five-minute seller financing.  The cash came in from the new transaction as the down payment and paid off the seller’s note, and they recorded all the deeds at the same time.

That same day, the builder closed for cash, which allowed David G’s self-directed Roth to cash out for $9,500.

Assignment of a Contract – The Results

David G. earned a $9,500 profit from a $250 investment!

Assignment of a Contract – Sizing Up the Competition

David G. had no competition in this deal. He was the only one negotiating with the seller because he found the property, he built rapport, and when the seller was ready to go, David G. was the person who got the opportunity.