Can a Self Directed IRA Hold Real Estate?

Can a selfdirected IRA hold real estate

Your self-directed IRA allows you to invest in various real estate assets, from commercial properties such as apartment buildings and retail space to raw land and private mortgage lending. However, there are certain rules you should keep in mind before purchasing investment property.

One of the key aspects of having an IRA is avoiding using property owned by it as your primary residence or living there (known as house hacking). Furthermore, you are prohibited from paying yourself to maintain, repair, or enhance the property owned by it.


Assets held within self-directed IRA accounts typically grow tax-free and the profits can be reinvested into other investments, but when investing in real estate IRA clients must adhere to strict guidelines that ensure property, sponsor and investment due diligence is conducted properly as well as all taxes being properly administered.

One key consideration for clients of individual retirement accounts (IRAs) who purchase real estate using debt is that any such property incurring unrelated business taxable income (UBTI) and potentially unrelated business deductible income (UDFI). To mitigate this tax issue, clients of an IRA could set up an LLC owned by their IRA as the property manager, giving more control to themselves and mitigating potential tax issues.

Other tax considerations involve the fact that IRAs cannot perform work on properties they invest in; as a result, all transactions involving real estate owned by an IRA must be conducted as arms-length transactions. Furthermore, an IRA may be subject to certain prohibited transactions, so investors should consult a knowledgeable financial adviser or CPA before investing in nontraditional assets like real estate or private companies.


Self-directed IRA investors may incur additional expenses depending on the assets they invest in, including transaction fees for buying or selling real estate assets, interest income from private mortgage lending and rental income. Furthermore, custodians charge fees to manage and process paperwork related to each investment.

Investors must remain mindful of IRS rules on self-dealing and prohibited transactions, especially the fact that self-directed IRAs cannot purchase real estate for personal use or work on it themselves. Investors can partner with disqualified persons as long as all aspects of a transaction can be accounted for; for instance, using non-recourse loans with all funds coming out of an IRA rather than personal funds to finance properties and hire service providers that do so is acceptable.

Fee reduction may also be achieved by shifting control of property from its custodians onto an LLC in which an IRA invests, giving checkbook control to your account while lessening reliance on a custodian for each transaction and potentially decreasing fees.


Real estate investments made using a self-directed IRA require some additional rules to consider, which may impact an investor. For instance, the IRS forbids performing work on investment properties under their own name – instead they must hire contractors and pay them from within their IRA account. This may prove costly for some investors and requires careful examination of properties to account for unexpected expenses.

Custodians for self-directed IRAs should not provide investment advice or make financial recommendations, so selecting one with significant experience in administering Self-Directed IRAs is essential.

Checkbook control provides SDIRA investors with more autonomy in making real estate investments; however, before making their purchase they should review it closely to ensure compliance with IRS prohibited transaction rules – specifically transactions involving disqualified parties such as spouses or children of an IRA owner; all income/expense from property should flow through to the IRA in question; etc.

Sweat Equity

Real estate investment can be an effective way to save for retirement and diversify portfolios, yet its investment process can be complex and time consuming – not to mention difficult when searching for good deals.

Self-directed IRAs give investors greater control over nontraditional investments such as real estate. They may also provide tax benefits and estate planning opportunities. Self-directed IRAs can also be used to invest in rental properties which provide income as well as appreciation, helping diversify an investor’s retirement portfolio.

Prior to investing property with your Self Directed IRA, there are a few key points you must keep in mind. First and foremost is selecting an administrator with experience managing Self-Directed IRAs; this will help ensure that your account is managed appropriately and does not engage in prohibited transactions. Also be sure to seek the advice of financial and tax professionals prior to making any investment decisions; any repairs and improvements made will have to come out of IRA funds.

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