Can a Self-Directed IRA Hold Real Estate?

Can a selfdirected IRA hold real estate

If you wish to invest in real estate through your Self-Directed IRA, certain restrictions must be observed. For instance, no person residing within any property purchased through an SDIRA should occupy it, and all expenses must be covered through it.

Your IRA custodian must also approve any investments and report back each year on the value of assets owned within it, which makes research of investments crucial to maximizing return.

Buying a Property

Self-directed IRAs give investors greater flexibility when it comes to real estate investing, giving them access to alternative assets like commercial and residential properties, raw land, mobile homes and more in their retirement accounts. Investments made within such accounts may grow either tax free (Roth IRA) or tax deferred (Traditional IRA), depending on which account type is chosen.

However, there are certain rules to abide by when purchasing property with an SDIRA. For instance, owners cannot gain any personal advantage or receive income directly or indirectly from it as this would violate IRS prohibited transaction rules.

Clients must conduct extensive due diligence when investigating potential investment properties and then obtain approval from their IRA custodian to sign any purchase contract documents. In some instances, this may require providing documentation of fair market value such as a Zillow report or professionally conducted comparative market analysis; as well as providing an authorization letter from their administrator in order to make purchases.

Financing a Property

Real estate investments are one of the top choices for an SDIRA, making an appealing and versatile portfolio choice. Your IRA could invest in single-family rentals, condos, commercial properties and farmland. In addition, mortgage notes – debt-based financial instruments which generate interest – could also be held within it.

However, you cannot live in or allow disqualified individuals such as spouses, children, parents, grandparents and grandchildren to use an SDIRA-purchased property for themselves or any other non-IRA custodian or permitted third party to occupy it. This restriction includes you.

Given that alternative assets can be difficult to value, you should always verify the information provided by account statements. You can do this by seeking independent valuation services or market experts for valuation; consulting tax assessment records or researching tax assessment records or other sources; hiring a third-party property management company which collects rental payments and forwards them straight into an IRA in order to avoid unrelated business income (UBI) tax as well as the mixing of personal funds into UBI tax.

Selling a Property

Once your property investment is ready to be sold, notify its custodian. After filling out internal forms and wiring your earnest money deposit (EMD) directly to the title company (if applicable).

As soon as your property sale is final, its ownership will transfer to a new owner while your profits return to your SDIRA account for you to invest. These funds could then be invested into other real estate investments or assets such as businesses, promissory notes, tax lien certificates or precious metals.

When selling property held within your SDIRA, it’s essential that you comply with the same self-dealing and prohibited transaction rules that apply when selling directly. This means ensuring the transaction doesn’t involve yourself or a disqualified family member. To overcome these limitations, securitized real estate investments such as REITs or ETFs that invest directly in properties may provide lower upfront costs and greater liquidity than directly purchasing physical real estate directly.


Self-directed IRAs allow investors to invest in alternative assets like real estate, promissory notes, precious metals and startup companies with greater returns than traditional IRAs and less regulations than publicly traded stocks. Due to this increased risk, however, investors should consult a financial advisor specializing in self-directed IRA management in order to complete all necessary due diligence processes before investing directly themselves.

Understanding how to purchase property with a self-directed IRA is of vital importance in order to comply with IRS rules, such as prohibited transactions that can incur significant taxes immediately. Working with a custodian who specializes in self-directed IRAs with reasonable fees is also vital; investors should also know their rights regarding what can or cannot be done with their property – such as living there themselves or renting to disqualified parties – while all paperwork associated with their investment is correctly filed away and appropriately titled.

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