How to Use Your Self-Directed IRA to Buy Property

Savvy retirement savers are always looking for ways to add to their investing portfolio besides traditional offers like CDs, ETF’s, bonds, and stocks. By having a self-directed IRA, you can purchase nontraditional investments that increase in value and become part of your retirement savings plan. Ultimately, a self-directed IRA allows you to invest in precious metals, real estate, tax lien certificates, notes, and a wide range of other investment options.

Definition of a Self-Directed IRA


For the most part, the self-directed portion of the retirement account provides alternative investment options either offered or accepted by an IRA custodian. Because of the nature of this type of IRA, it’s the perfect vehicle to purchase real estate as part of your retirement portfolio.

How to Use Self-Directed IRAs to Buy Real Estate

After you’ve set up a self-directed IRA, the next step is to find an IRA custodian that can help you navigate the difficult and confusing IRS tax code waters. So definitely do your homework to determine expenses and potential fees that could have a serious impact on your investment return overall.

Determining the Main Benefits of Owning Real Estate Investments in an IRA

As you can imagine, there are definitely big benefits to buying real estate under your self-directed IRA. Some of the biggest benefits include:

  • Tax-deferred income.
  • Accumulate income tax-free.
  • Withdraw accumulated income tax-free.
  • Even as an active investor, you can flip, sell, or buy properties, and move money from one project to another yet still keep your tax deferral status with the IRS.
  • If you are familiar with investing in real estate, you’ll feel comfortable and confident continuing to invest this way for your retirement. The familiarity alone makes investing in real estate in an IRA an excellent option.

Are There Any Potential Downside Risks to Investing in Real Estate in a Self-Directed IRA?

For starters, just like any other real estate investor, you’ll need to perform all of your due diligence when considering buying a property. If you are an experienced investor or real estate professional, this isn’t going to be such a big deal. But if you aren’t too familiar with real estate investing, making mistakes could potentially cause you to purchase a bad investment or make a foolish decision.

Another big risk is the lack of diversification. It’s difficult to create a diversified real estate portfolio. Focusing solely on upside potential could be very risky when purchasing investment properties. Liquidity is another area of concern that you should keep in mind when you purchase real estate inside of your IRA.

Lastly, when it comes time to take distributions after you’ve reached retirement age, your real estate investments could potentially create a problem if you need the money but still own the property and don’t want to sell because you’re currently in a down market.

Final Thoughts

No matter what way you slice it, investing in real estate in a self-directed IRA is certainly a great way to invest in your retirement. But it’s not for everyone, so please keep that in mind when considering if this investment vehicle is the right one for you to choose.  You can also choose to use your ROTH IRA to buy property as well.