Real Estate IRA
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).
10% Holdback on Brick & Mortar Real Estate Transactions
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.
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.
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.
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.
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
- 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.
