Buying Real Estate With a Self-Directed IRA: The Complete Guide
Real estate is the most popular alternative investment held inside self-directed IRAs — and for good reason. Your IRA can purchase rental properties, commercial buildings, raw land, and more, with all income and appreciation growing tax-deferred or tax-free depending on your account type.
But buying real estate with an IRA is not the same as buying it personally. The IRA owns the property, not you. All income flows into the IRA. All expenses are paid from the IRA. You cannot personally use the property or perform work on it. And the consequences of breaking these rules can disqualify your entire retirement account.
How It Works: The IRA Owns the Property
When your self-directed IRA purchases real estate, the property is titled in the name of the IRA. This means:
- All rental income goes directly into the IRA
- All expenses (property taxes, insurance, repairs, property management fees, HOA dues) are paid from IRA funds
- You cannot personally contribute labor or money to the property outside of normal IRA contributions
- You cannot live in, vacation in, or use the property in any way
Step-by-Step: How to Buy Real Estate With Your IRA
Step 1: Open and Fund Your Self-Directed IRA
Open your account at udirectira.com/open-an-account/ and fund it BEFORE you start looking for property. Fund transfers typically take 2-6 weeks.
Pro tip: Keep at least 10-15% of the property value in cash reserves inside the IRA after closing.
Step 2: Find the Property
You identify the property your IRA will purchase. Perform your own due diligence:
- Evaluate income potential and expenses
- Get inspections, appraisals, and title searches
- Verify zoning and permits
- Confirm the property is not owned by a disqualified person
Step 3: Execute the Sales Contract
The sales contract must list your IRA as the buyer — not you personally.
Step 4: Submit Documents to the Custodian
Provide the custodian with a copy of the sales contract and a Direction of Investment (DOI) form.
Step 5: Earnest Money and Closing Funds
The custodian sends earnest money deposits from the IRA. You cannot use personal funds for any part of the transaction.
Step 6: Own, Manage, and Maintain
- Hire a property manager or manage the property yourself (managing is permitted; physical labor is not)
- Collect rent into the IRA
- Pay all expenses from the IRA
- All repair and maintenance work must be performed by unrelated third parties
Types of Real Estate Your IRA Can Own
| Property Type | Examples | Key Considerations |
|---|---|---|
| Residential rentals | Single-family homes, duplexes, condos | Most common. Steady rental income. |
| Multifamily | Apartment buildings, triplexes, fourplexes | Higher income potential. More complex. |
| Commercial | Office buildings, retail, industrial | Longer leases, higher capital requirements. |
| Raw land | Undeveloped parcels, agricultural land | No income until developed or sold. |
| Short-term rentals | Vacation properties, Airbnb-style | Higher income but may trigger UBIT. |
| Self-storage | Storage facilities | Lower maintenance, scalable income. |
| Fix and flip | Distressed properties | All renovation by third-party contractors. |
| Syndications | Pooled investments in large properties | Passive — a sponsor manages the property. |
| Seller-financed | Seller carries the note | Advantageous when traditional financing is difficult. |
Real Estate IRA Rules: What You Must Know
The Prohibited Transaction Rules
You cannot:
| Prohibited Action | Why It’s Prohibited |
|---|---|
| Buy a property from yourself or a family member | Transaction with a disqualified person |
| Sell an IRA-owned property to yourself or family | Transaction with a disqualified person |
| Live in, vacation in, or use the property | Personal benefit from IRA assets |
| Let your children, parents, or spouse use the property | Benefit to a disqualified person |
| Personally fix a leaky faucet, mow lawn, or paint | Providing services (labor) to the IRA |
| Pay property expenses from your personal bank account | Commingling personal and IRA funds |
| Receive rent payments into your personal account | IRA income must flow to IRA |
| Co-sign or personally guarantee a loan on the property | Prohibited extension of credit |
You can:
- Find and negotiate deals
- Manage the property (collect rent, hire contractors, make decisions)
- Hire any unrelated third party for repairs and maintenance
- Use a property management company
- Rent to unrelated tenants at fair market value
The Self-Dealing Trap
The most common mistake: treating IRA-owned property like your own. Even unpaid labor — fixing a broken pipe on a weekend — is a prohibited transaction.
Financing Real Estate in Your IRA
Non-Recourse Loans Only
IRA real estate purchases must use non-recourse financing:
- The loan is secured only by the property itself
- The lender cannot pursue you personally
- You cannot personally guarantee the loan
UDFI Tax on Leveraged Properties
When your IRA uses a mortgage, the portion of income attributable to the borrowed funds is subject to Unrelated Debt-Financed Income (UDFI) tax.-
Solo 401(k) exception: If you use a Solo 401(k) instead of an IRA, UDFI tax generally does not apply to leveraged real estate purchases.
All-Cash Purchases
Buying with 100% IRA funds avoids the UDFI tax entirely.
Tax Advantages of Real Estate in an IRA
Traditional Self-Directed IRA
- Rental income grows tax-deferred
- Property appreciation is tax-deferred
- Taxes are paid when you take distributions in retirement
Roth Self-Directed IRA
- Rental income grows tax-free
- Property appreciation is tax-free
- Qualified distributions are completely tax-free
- No required minimum distributions during the owner’s lifetime
What You Give Up
- No depreciation deductions
- No mortgage interest deduction
- No 1031 exchange
Real Estate IRA Strategies
Buy and Hold Rentals
The most straightforward strategy. Purchase a rental property, collect income, let it appreciate.
Private Lending
Instead of buying property, your IRA lends money to other real estate investors. Secured by a deed of trust.
Syndication Investing
Pool your IRA funds with other investors to participate in larger deals.
Roth Conversion Before Purchase
If you plan to buy a property you believe will appreciate significantly, consider a Roth conversion before making the purchase.
IRA-Owned LLC (Checkbook IRA)
For active real estate investors making frequent transactions, an IRA-owned LLC provides checkbook control.
Common Mistakes to Avoid
- Not having enough cash reserves. Keep 10-15% of property value as a cash cushion.
- Doing any work on the property yourself. Even unpaid labor is prohibited.
- Buying from or selling to a disqualified person. No exceptions.
- Starting the purchase before the IRA is funded. Transfers take 2-6 weeks.
- Mixing personal and IRA funds. Every dollar must flow through the IRA.
- Forgetting about UDFI on leveraged purchases. Budget for the tax obligation.
- Not planning for RMDs. You need cash in the IRA when distributions begin.
Getting Started
- Open a self-directed IRA — udirectira.com/open-an-account/
- Fund the account — Via contribution, rollover, or transfer. Allow 2-6 weeks.
- Review the rules — udirectira.com/prohibited-transactions/
- Find your property — Perform due diligence. Verify no disqualified person connections.
- Direct the custodian — Submit your sales contract and Direction of Investment form.
Have questions? Schedule a free consultation at udirectira.com/schedule-consultation/ or call (866) 447-6598.
Frequently Asked Questions
Can I buy a house with my IRA?
Yes. Your self-directed IRA can purchase residential property. You cannot live in it, vacation in it, or use it as a residence.
Can I use my IRA to buy rental property?
Yes — rental property is the most common self-directed IRA real estate investment.
How much money do I need to buy real estate with my IRA?
An all-cash purchase might require $50,000-$100,000. With non-recourse financing, your IRA may need $30,000-$60,000 for a down payment plus closing costs and cash reserves.
Can my IRA get a mortgage?
Yes, but only a non-recourse loan. You cannot personally guarantee the loan.
Can I do repairs on a property my IRA owns?
No. All work must be performed by unrelated third-party contractors paid from IRA funds.
Can I flip houses with my IRA?
Yes, but all renovation work must be performed by third-party contractors. Frequent flipping may trigger UBIT.
What happens when I sell a property in my IRA?
The sale proceeds flow back into the IRA. In a Traditional IRA, the gain is tax-deferred. In a Roth IRA, the gain is tax-free.
Is it better to use a Traditional or Roth IRA for real estate?
If you expect significant appreciation, a Roth IRA is generally more advantageous — all growth is completely tax-free.