What is a Real Estate IRA?
“Real estate IRA” is a term used to describe an IRA or 401(k) allowing real estate investment(s). You can use a Traditional, Roth, SEP, SIMPLE IRA or even a Solo 401(k).
Many account holders turn to IRA real estate investments when they want more control over their retirement strategy. Unlike mutual funds or stocks, real estate IRAs tie retirement wealth to assets you can see and manage. Investors often choose this route to diversify risk and balance market volatility with stable rental income.
What is “Brick & Mortar” Real Estate?
Brick & mortar real estate refers to physical real estate properties—such as single-family homes, multi-unit buildings, commercial real estate, and land—owned directly by your IRA. These are not REITs, funds, or syndicated shares, but actual deeded properties held in the name of your IRA.
Physical assets can provide security, but they also bring new responsibilities. For example, property repairs, insurance, and tenant oversight must all be coordinated through the IRA. When considering investing IRA in real estate, always account for these operational details. Planning makes real estate IRAs a reliable tool for retirement wealth building.
10% Holdback Rule: Certain real estate investments will now require a 10% holdback of the property’s value to remain in your IRA as a reserve. Our Transaction Department will provide further details specific to your transaction. This reserve ensures there are funds available to cover ongoing property-related expenses such as property taxes, repairs, insurance, and maintenance. A minimum deposit of $500 is no longer considered sufficient for this purpose.
The 10% holdback rule protects account liquidity. With IRA real estate investments, unexpected costs from emergency plumbing work or rising insurance rates can strain your resources. Keeping a holdback inside the IRA provides a financial buffer and keeps your strategy for investing IRA in real estate compliant and sustainable.
Important: The 10% holdback does not restrict your ability to make withdrawals or pay vendors. It applies only when initiating new real estate investments and acts as a safeguard to ensure account liquidity for existing property obligations. This holdback may be waived if the account holder has alternate qualified funding sources available to maintain the property and cover necessary expenses.
Reminder: All expenses related to IRA-owned real estate must be paid from the IRA itself. Personally covering these costs is considered a Prohibited Transaction under IRS rules.
Investors new to IRA real estate investments sometimes pay for property expenses, such as utility bills, roof repairs, or property taxes, out of their personal checking accounts. Doing so violates IRS regulations, and the penalty can include account disqualification and immediate taxation of all assets.
To stay compliant, every expense must be billed to and paid from the IRA’s funds. Custodians protect real estate IRAs by verifying that invoices are processed through the account and that all property-related income, such as rent or sale proceeds, flows back into the IRA instead of a personal bank account.
Excluded States for Brick & Mortar Real Estate only:
Due to recurring challenges and risk factors, we do not accept physical real estate purchases in the following locations:
- The State of South Carolina
- The State of Maryland
- The State of New York
- Cook County, Chicago, Illinois
- The State of Georgia
Why Use a Real Estate IRA?
A self-directed real estate IRA allows you to earn tax-deferred or even tax-free returns on your real estate investments, depending on whether you use a Traditional or Roth IRA. This strategy can help you diversify your retirement portfolio while building long-term wealth.
Investing IRA in real estate directs your retirement funds into tangible market opportunities. You can generate a steady income through residential rentals or pursue higher appreciation with commercial properties. Real estate IRAs also hedge against inflation because property values and rental income often rise alongside the cost of living.
What Types of Real Estate IRA Investments are Allowed?
The following is a partial list:
- Raw land
- Single-family homes
- Commercial property
- Apartments
- Duplexes
- Condos/townhomes
- Mobile homes (must be attached to a permanent foundation)
- Real estate notes
- Second mortgages
- Partial notes
- Real estate purchase options
- Tax liens certificates
The following are important real estate IRA rules to follow during your investment process:
- Your IRA Cannot Purchase Property Owned by You or a Disqualified Person
- You Cannot Put Any of Your Own Money into the Real Estate IRA Investment Deal
- You Cannot Have “Indirect Benefits” from Property Owned by Your Self-Directed IRA
- Real Estate IRA Investments Are Uniquely Titled
- Real Estate IRA Investments that Use Financing Must Pay UBIT
- Real Estate IRA Expenses Must Be Paid from Your IRA
- Real Estate IRA Income Must Return to Your IRA
- For more information, see Real Estate IRA Rules.
The rules governing IRA real estate investments cover every part of the process, from recording property titles to depositing rent checks. Each step must flow through the retirement account to remain compliant with IRS standards.
An experienced custodian can guide you through documentation and payment handling so that transactions are accurate. When you want retirement diversification with clear compliance pathways, real estate IRAs are one of the most versatile and rewarding self-directed strategies.