Real Estate

The Process of Investing in Real Estate with a Self-Directed IRA

Most IRA owners are still investing in stocks, bonds, and mutual funds because insurance companies, banks, and brokerages typically control the type of investments that may be used. But a growing number of investors are choosing to be independent of the limited choices being offered by these firms. They are taking a different route by using a Self-Directed IRA.

Self-Directed IRAs are legally structured just like a traditional or Roth IRA. The annual contribution limits and tax advantages are identical, but the choices of investments are greatly expanded. While common stocks, bonds, and mutual funds are still available through Self-Directed IRAs, the addition of private stocks, tax liens, precious metals, joint ventures, private notes, and real estate add diversity and control into retirement investing.

Real estate appeals to a wide variety of investors

As the name suggests, real estate is tangible. It is more predictable than many of the traditional investments, and it can be passed down through multiple generations. In other words, it can be a key ingredient in anyone’s retirement portfolio.

As mentioned, diversity and control are the two overriding factors that steer many investors toward a Self-Directed IRA in real estate. Confidence in Wall Street and money managers has waned over the years, and investors are becoming aware that there are so many avenues for researching alternative investments, such as real estate, which gives them the confidence to direct their funds and have the potential for higher returns.

Purchasing real estate with your Self-Directed IRA is not difficult

Here’s how it works:

  • After you open your Self-Directed IRA, you will also open a checking account that’s associated with your IRA. The checking account, set up at your bank, will be the platform through which you purchase and manage your investment properties.
  • After you have completed the necessary research and are ready to buy a property, you write a check from the dedicated account.
  • All deposits, such as rent checks and the proceeds from any sales, are made into the checking account. Conversely, any expenses–mortgage payments, real taxes, improvements, utility bills, repairs, etc.—are paid from the same account.

Keep in mind that Your IRA owns the property. You manage it on behalf of your IRA, but every transaction must go through your IRA checking account.

Follow the rules for Self-Directed IRAs in real estate

While there are no restrictions on the type of real estate your Self-Directed IRA may purchase, there are rules that govern the ownership and servicing of the property. Failure to abide by them could have your entire account deemed a full distribution with taxes and penalties.

Here are the rules:

  • Your Self-Directed IRA may not purchase a property that you already own. Similarly, you are not allowed to buy a property that your IRA owns.
  • You may not live in, or vacation in, any property that your IRA owns.
  • You may not hire a business owned by a disqualified person to provide a service to your IRA-owned property. In other words, if your IRA owns a rental property, you may not hire your father’s roofing company to replace the roof.
  • You are not allowed to receive a salary for managing the property. You may, however, perform managerial services without charging your IRA.
  • You may not perform physical work to the property that your IRA owns.

Due diligence is the key to successful real estate investing

The first step into real estate investing should be to research the market, which includes demographics, income, and job growth. If you are hiring someone to manage the real estate, make a thorough inquiry into that individual. And also research the custodian who will be handling your transactions.

Do you have questions about using a Self-Directed IRA to buy real estate?

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

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