Using Your IRA to invest in Real Estate


A retirement account such as a traditional IRA, Roth IRA, Simple IRA, SEP, KEOGH, 401K etc. can hold many types of investments. It can hold stocks, bonds, mutual funds, cash and…surprise: real estate.

One reason most people do not realize that their IRA can hold real estate is because most companies that hold retirement accounts are not geared up to handle real estate. So there is no incentive for these companies to inform their clients about investing in real estate.

The first step is to establish a self-directed retirement account with a custodian that specializes in real estate IRAs. This can be done by rolling over assets of an existing account to the self-directed account. After the account is established the custodian can handle the transactions.

There are some very important things you can and cannot do with your real estate IRA.

Things you can do:

 - The IRA can buy and sell many types of properties such as single family homes, condos, townhouses, vacant land, commercial property, fixer-uppers, etc. But remember the IRA buys, sells, and owns the property. The custodian handles all transactions in the name of the IRA. You do not withdraw the money from the IRA to handle the transaction.

- All expenses of renting or operating the property is must be paid by the IRA and all rents or income from the property goes directly to the IRA. So it is important to make sure the IRA has sufficient funds to cover any expenses.

- It is possible to finance a property by using your self-directed IRA. But the financing must be “non-recourse”. Meaning the property, not the IRA, is the sole security for the loan. Most lenders will not allow non-recourse financing but it is possible with seller financing or private loans. You should consult with a professional first.

- Your IRA can buy a partial interest in a property.

Things you cannot do:

- You and certain family members cannot already own the property the IRA is buying nor can it be sold to you or certain family members.

- You and certain family members cannot have any personal use of the property, such as a vacation rental.

- Your IRA cannot lease the property to your business nor can your business occupy the property.

You should consult with a real estate professional and an accountant to help decide if using a self-directed IRA for real estate investing is right for you. For example if a property that produces tax shelter from depreciation probably would not be a good fit. Also there is a limit to how much you can contribute to an IRA, but there is no limit to the amount the IRA can earn tax deferred (tax free if it is a ROTH IRA).

Adding real estate to your current portfolio is just another vehicle to use and a self-directed IRA may be an excellent choice that most people do not realize. If using your IRA to invest in real estate sounds like an option for you please give us a call at (910) 367-1671 or email us at for more information.

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