Real Estate

Using a Self-Directed IRA to Buy Real Estate

Individual retirement accounts, also known as IRAs, are often invested in stocks, bonds, and mutual funds, or even ETFs. But what many people don’t know is that one of the other great asset classes—Real Estate—is also available in this type of account. An investor can turn to a Self-Directed IRA to make investments in Real Estate such as single-family homes, multi-family homes, and even apartment buildings. This, in turn, allows an investor’s IRA to collect the rent or enjoy tax-benefitted gains on the value of a property once it’s sold.

In other words, it’s possible to use a Self-Directed IRA to open up a whole new world of Real Estate investing. But how does the process work, and what are the bounds that investors need to know before getting started?

Using a Self-Directed IRA

The first rule is that you will need a Self-Directed IRA to get started. It’s through the process of Self-Direction—using those investments that an IRA custodian can facilitate—that makes Real Estate investing possible. The company you work with should be reputable, reporting with the IRS to ensure that everything is done the proper way and through the proper channels. Once you find a legitimate Self-Directed IRA administration firm, you have a lot of what you already need to get started.

You’ll also need to set up an account and fund it. There is the possibility of seeking non-recourse loans with an IRA, which will give you the option to expand the kind of assets you have in your portfolio. However, it’s important to remember that this should be done in consultation with a financial advisor, as the Self-Directed IRA administration firm does not serve as this adviser. A Self-Directed IRA administration firm, in fact, will not offer investment advice. They will simply facilitate the investments that you want to make through your IRA.

Investing in Real Estate

Once you have a Self-Directed IRA with a legitimate custodian, you can then execute buy and sell orders in the account. These will then be carried out by the Self-Directed IRA administration firm serving as the custodian on your account. The Real Estate assets within the account will then reflect the buys and sells you’ve made.

You will also have to make sure that you avoid breaking the rules. After all, many investors who invest in Real Estate are used to ideas like renting it out to someone they’re related to, or maybe even keeping the Real Estate for themselves while renting out a unit to another party. However, in Self-Directed IRAs, you can’t use this Real Estate for personal benefits, as this would negate the idea of keeping the properties separate from your personal, taxable investments. You could face stiff fines and penalties if you mismanage your Self-Directed IRA in this way.

How It All Works

Fortunately, the process of investing in Real Estate with a Self-Directed IRA is more straightforward than you might imagine. The key is to open a Self-Directed IRA with a reputable Self-Directed IRA administration firm, which will then be able to handle the administration on the account. From there, you’ll work with that custodian to handle the buy/sell orders you place. They will make sure that the paperwork and reporting requirements are in line, giving you the freedom to invest as you please—as long as it follows the rules. For many, it can be a powerful way to utilize one of the most powerful asset classes for investing.

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