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What-is-a-real-estate-IRAWhat is a Real Estate IRA?

A real estate IRA is a self-directed individual retirement account (Traditional IRA, Roth IRA, SEP, SIMPLE) that you can use to hold real estate as an investment. With a truly self-directed real estate IRA, you can invest in assets such as: residential properties, commercial real estate, mortgage notes, raw land, mobile homes, and more. The investment decision is yours to make.
 

Frequently Asked Questions

Yes. A self-directed IRA or retirement account can purchase real estate— but it has to be for investment purposes. Per IRS rules, you can't get any personal benefits from the real estate. You can't live in it, vacation in it, or have certain relatives benefit in any way from your IRA-owned real estate.

Real Estate IRAs are different from other "self-directed IRAs" offered at custodians like Fidelity, TD Ameritrade, and Charles Schwab. In a Real Estate IRA, you can purchase real estate assets like single family homes, commercial real estate, raw land, mobile homes, and more as investments for your IRA. You aren't limited to stocks, bonds, or mutual funds. The assets are purchased through a self-directed IRA custodian —like IRAR!— with your IRA funds. The income and expenses from these assets flow in and out of the IRA. The real estate is for investment purposes and NOT for personal use.

No, this is considered a prohibited transaction. Your IRA can't buy property you currently own. See IRS Code 4975 for information on prohibited transactions, disqualified persons, and self-dealing.

No, the property is for investment purposes only and not to be used personally, in any way.

Real estate is allowed in self-directed IRAs. The only assets not allowed in IRAs are life insurance and collectibles.  Maybe your financial adviser's firm does not allow alternative assets such as real estate in their accounts? A self-directed IRA custodian like IRAR does.

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Strategies to Buy Investment Property with a Self-Directed IRA

There are several ways for a self-directed IRA to purchase real estate. You don't need to have the full purchase amount in your IRA to buy property. Your IRA can get a loan or partner with others. You can also decide if you want to have full bookkeeping control of the account via an LLC, or have IRAR do that on your behalf. Here are some of the most popular self-directed IRA strategies:

IRA LLC

IRA LLC

LLC/Checkbook Control is the process of establishing a limited liability company (LLC) with IRA funds and using the LLC to buy the asset. 

Partnering

IRA Partnering

Partnering is when you bring in other sources of cash to fund the investment purchase or investment opportunity.

IRA Loan

IRA Loan

Leveraging is when your IRA takes out a loan, typically known as an IRA non-recourse loan

Direct Purchase

Real Estate IRA Purchase

Direct Purchase is when you purchase the property using only money in your self-directed IRA. Your IRA pays all-cash for the investment. 

 

IRA Property Manager

One of the questions we hear most often is “Do I have to hire a property manager for the rental properties my IRA owns?” We get this question a lot because the IRS isn’t known for writing its rules in plain English.

The easy answer is “no, you don’t,”— and there are pros and cons to hiring a property manager, if you chose to. A property manager should be considered as part of your overall investment strategy and goals.

LEARN MORE about property managers and IRA-owned real estate investments.

 

real estate IRA property manager rules
self-directed-IRA-taxes-on-UBIT

IRA Taxes

Don’t let the T-word ("taxes") scare you away from an investment opportunity in real estate to boost your retirement portfolio. In fact, if you are paying taxes, this means your investment is generating revenue and feathering your retirement nest egg.

For the most part, while the real estate assets are in your self-directed IRA, you don’t have to pay taxes on the income generated. These accounts have a tax-free or tax-deferred status depending on the type of IRA (Roth vs. Traditional.) However, there are two exceptions when taxes do apply.

 LEARN MORE about IRA-owned real estate and taxes.

 

Self-Directed IRA Fees

Fees add up over time and eat into your retirement savings. When you invest in real estate with your IRA, there are transaction fees, as well as annual fees.  

However, you don't have to overpay for your self-directed IRA. Before you choose a provider, do your research regarding the fees you will be charged, along with the provider’s experience, responsiveness, and timely delivery of services.

When you comparison shop you’re more likely to find the best match for your investment strategy. 

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IRA Resources self directed IRA fees

 

Important Self Directed Real Estate IRA Matters

self directed IRA income and expenses


Income & Expense

Bills such as property tax, property insurance and all other expenses for the property must be paid by the self-directed IRA.

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FAQ for SDIRA Real Estate


Questions

Learn from the most frequently asked questions of real estate investors. Download the rules of IRAs when investing in real estate.

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self directed IRA RMD Distributions


Distributions

You can take a distribution or RMD from any IRA that holds cash. If you do not have cash in an IRA, here's how to take a distribution from your real estate IRA.

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