Can You Invest in Real Estate With Your IRA?
Yes — you can invest in real estate with your IRA. It's often assumed to be more complicated than it actually is. The rules are specific, but the structure is straightforward.
This guide covers how real estate investing inside an IRA works, what types of real estate qualify, what the tax advantages look like, and the rules you need to understand before you start.
You Need the Right Account
A standard IRA through a brokerage — Fidelity, Vanguard, Schwab — does not allow direct real estate ownership. Those platforms limit you to publicly traded securities.
To hold real estate inside a retirement account, you need a self-directed IRA (SDIRA) held at a specialized custodian — a trust company or financial institution approved by the IRS to hold alternative assets. The account functions identically to a regular IRA in terms of contributions, tax treatment, and withdrawal rules. The only difference is what you can hold inside it.
For a full overview of how self-directed IRAs work, see: What Is a Self-Directed IRA?
Not sure which custodian to use? Fees, accepted asset types, and service quality vary widely. I recommend specific ones based on what you're trying to do.
What Types of Real Estate Can an IRA Hold?
A self-directed IRA can hold a wide range of real estate assets, including:
- Residential rental property — single-family homes, duplexes, small multifamily
- Commercial real estate — office, retail, industrial, mixed-use
- Raw land — undeveloped parcels, agricultural land
- Real estate syndications and funds — LP interests in private real estate partnerships
- Mortgage notes and trust deeds — lending against real property (the IRA becomes the lender)
- Tax liens and tax deeds — purchasing delinquent tax certificates
- Foreign real estate — property outside the United States
The IRA is the owner of record on all directly held property. The title reads something like "Custodian Name FBO [Your Name] IRA."
How It Works
When you invest in real estate through a self-directed IRA, the account — not you personally — owns the asset. That distinction governs everything:
- All income flows to the IRA. Rental income, interest payments, and sale proceeds go directly back into the account.
- All expenses are paid from the IRA. Property taxes, maintenance, insurance, and management fees must be paid with IRA funds, not personal funds.
- You direct the investment. You identify the property and instruct the custodian to execute the purchase on behalf of the account.
Many real estate investors use a checkbook IRA structure — an LLC owned by the SDIRA — to move more quickly on transactions without requiring custodian approval for each purchase. This adds flexibility but also administrative complexity.
What Are the Tax Advantages?
Traditional SDIRA
Rental income and capital gains from property sales compound tax-deferred. You pay no taxes on the income or appreciation until you take distributions in retirement.
Roth SDIRA
All income and gains are tax-free — including rental income and the full gain on a property sale. For appreciating assets held over long periods, the Roth structure can be especially powerful.
In a taxable account, rental income is taxed annually as ordinary income and capital gains are taxed on sale. Inside an IRA, that tax drag is eliminated — the full return compounds inside the account.
Rules You Must Know
No Personal Use
You cannot use IRA-owned property for personal benefit. This means you cannot live in it, vacation in it, or use it in any way — even for a single night. Your family members and other disqualified persons (your spouse, children, parents, and anyone providing services to the IRA) are subject to the same restriction. This rule applies even if you pay fair market rent.
No Self-Management for Compensation
You can make decisions about the property — selecting it, approving improvements, setting rent — but you cannot be paid for services related to it. If the property needs management, a third-party property manager must be hired and paid from IRA funds.
No Commingling of Funds
IRA funds and personal funds must be kept entirely separate. If a repair bill comes in, it must be paid from the IRA. Paying it personally and reimbursing yourself from the IRA is a prohibited transaction.
Debt Financing and UDFI
If you use a mortgage to finance a property inside your SDIRA, be aware of Unrelated Debt-Financed Income (UDFI) — a form of Unrelated Business Taxable Income that applies to the leveraged portion of income and gains. The portion of the return attributable to borrowed money is taxable even inside an IRA. Many real estate SDIRA investors use all-cash purchases to avoid this complication, though financing is not prohibited.
Frequently Asked Questions
This guide is for informational purposes only and does not constitute investment, tax, or legal advice. IRS rules governing self-directed IRAs and prohibited transactions are complex and subject to change. Consult a qualified financial advisor, CPA, and attorney before investing retirement funds in real estate.