Want to use your retirement account to buy real estate? A self‑directed IRA real estate strategy could be your ticket—letting you invest in rental homes, raw land, commercial spaces, or even mortgage notes using IRA funds. Also known as SDIRA investment, it offers big tax advantages—but it comes with strict rules and risks. This guide explains everything in plain English, with real examples, clear steps, and local provider recommendations.
1. What Is a Self‑Directed IRA for Real Estate?
A self‑directed IRA (SDIRA) is a retirement account that lets you invest in alternative assets—real estate, real estate notes, private equity, precious metals—instead of just stocks and bonds .
What makes it powerful for property investors:
- The IRA—not you personally—owns the property.
- All income (rent, sale proceeds) goes back into the account.
- All expenses (repairs, taxes) must also come from the IRA .
- You can use traditional, Roth, SEP, SIMPLE IRAs, or Solo 401(k)s as SDIRAs.
2. Benefits of an SDIRA Investment
Tax-Deferred or Tax-Free Growth
Rent and profits stay sheltered inside the IRA until withdrawal—and Roth SDIRAs can offer tax-free withdrawals later.
Diversification & Control
You pick specific properties—single-family homes, land, flips, commercial buildings—and control every decision .
Asset Protection
IRA assets are protected in bankruptcy up to certain limits under federal law .
3. Common Pitfalls & How to Avoid Them
Avoid these SDIRA missteps:
1. Prohibited Transactions
You can’t buy property from yourself or family, nor use the property personally.
2. Sweat Equity is Not Allowed
You must hire contractors—IRA owners cannot perform or oversee repairs themselves.
3. Check the IRA Title
The property title must name the IRA custodian and account—not your personal name.
4. All Money Must Flow Through the IRA
Income and expenses must be paid from IRA funds via the custodian—never your personal account.
5. Unrelated Debt-Financed Income (UDFI)
If you use a non‑recourse loan inside your SDIRA to buy property, income from that leveraged portion may trigger UDFI tax.
6. High Fees, Complex Rules
Custodians charge asset-based fees, plus closing/appraisal costs. IRA rules are tough; mistakes bring penalties .
4. Step‑by‑Step Setup Guide
Step A: Open & Fund an SDIRA
Select a custodian like The Entrust Group, IRAR, Madisom Trust, or Directed IRA. Fund via rollover, transfer, or contribution.
Step B: Know the Rules
Understand IRS rules—no personal benefit, all transactions via IRA, prohibited parties must be avoided.
Step C: Choose Property & Conduct Due Diligence
Treat it like a normal deal: inspect, research rent comps, title, taxes, permits, and cash-flow projections.
Step D: Execute the Purchase
Purchase contract is signed by the custodian on behalf of your IRA. Title goes to SDIRA. Fund deposit and closing through IRA funds .
Step E: Manage the Property
Hire property managers/contractors. Ongoing expenses and rent goes through the IRA custodian.
Step F: Exit Strategy
To sell, instruct custodian. Proceeds go back in IRA. Or refinance with a non-recourse loan (watch for UDFI).
5. Real‑Life SDIRA Property Examples
- Rental Home via Entrust: An investor purchased a rental home inside a Clayton, GA SDIRA. Rent flowed into the IRA, and periodic refinances helped fund new purchases—no personal tax hit until withdrawals.
- Land Flip in North Carolina: Investor bought raw land via IRA, installed infrastructure with IRA funds (contractor), then sold the land profitably—all inside the IRA, avoiding capital gains tax.
- Commercial Note via IRAR: An SDIRA investor bought a private mortgage note backed by a downtown office property, receiving steady interest payments tax-deferred inside the account.
6. Local Custodians & SDIRA Partners
- The Entrust Group: Handles rental, land, commercial investments; strong educational resources.
- IRAR Trust Company: Offers SDIRA and Checkbook IRA options.
- Directed IRA: Easier account setup, supports commercial and residential assets .
- Horizon Trust & IRA Financial Trust: Provide non-recourse loan access and advanced structures .
7. Risks & Tax Consequences
| Risk | Description |
| UDFI tax | Applies to loan-funded property use via IRA |
| Prohibited transaction penalties | Can invalidate IRA status |
| High fees | Custodial fees, closing costs, loan costs |
| Illiquidity | Real estate takes time to sell |
| Oversight burden | You manage the deal; custodian doesn’t consult |
8. Tips for Success
- Consult pros – SDIRA CPA and real estate attorney are essential.
- Pick the right custodian – Fee, support, non-recourse options matter.
- Treat it like a real deal – Inspections, comps, title, cash flow.
- Never co-mingle funds or benefit personally – Follow IRS rules strictly.
- Plan your exit – Understand resale vs refinance choices.
- Stay informed – UDFI, IRS audits, 72(t) rules for Roth IRAs.
9. Final Takeaways
A self‑directed IRA real estate strategy opens doors to more diverse, hands-on investment. It can turbocharge retirement savings—but only if you follow complex rules: no personal benefits, strict custodial title, and careful tax handling of debt-financed deals. When done right—using the right SDIRA investment structures, custodians, and advisors—you can hold properties in retirement with significant tax advantages.
