Self-Directed IRAs and Real Estate: What Every Investor Should Know

When it comes to investments and your financial future, it can often feel like you don’t have much say in where your money goes. While this is fine for some people, others prefer to be in control. That’s where a self-directed IRA comes into play. A self directed IRA can help you make better investment decisions, and you have the final say in how you put your money to work. Many people who go with self-directed IRAs forego traditional assets, like stocks and bonds, and opt to invest in real estate instead.

Why Choose Real Estate?

Most people don’t think of real estate as a retirement investment, but it’s probably the most popular choice for those with self-directed IRAs. Real estate is usually safer and more reliable than the stock market. Real estate investments are also good for your taxes. You can buy and sell property within any amount of time without worrying about withdrawal penalties as you would with a Roth IRA. The potential is also there to see a bigger ROI. Another reason some people opt for real estate is familiarity. They may be more knowledgeable about the real estate market and even have previous experience. As a matter of fact, most experts suggest you to only invest in real estate if you already know something about it or work with an adviser.

Doing the Work

Unlike investing in stocks and bonds, investing in real estate requires a bit of effort. Just like you would if you were buying a home or business out of pocket, you need to put in the work to determine if the property is suitable for an investment. You must know the market in the area, and determine any ongoing costs. You’ll also need to make sure your IRA can afford the investment. From insurance and property taxes to repairs and upgrades, real estate isn’t usually a one-time payment.

Following the Rules

It’s also important to understand that there are some pretty strict rules when it comes to investing in real estate through your self-directed IRA. For example, the property you buy can’t directly benefit you or anyone else the IRS considers a disqualified person. That means you can’t buy a house and rent it to your children or parents or use it as a vacation home. You can’t buy an office building and set up your own business there or rent it to yourself. You are also forbidden from buying a property you already own from yourself using the IRA. As a matter of fact, any property you acquire will not actually be in your name. Any tenants must make their rental checks out to the IRA. Also, any income you generate must go back into the IRA.


Investing in your financial future is a must, but there’s more than one way to do it. More and more people are learning that each year and turning to options like self-directed IRAs that allow them to invest in real estate properties. From taxes to ROI, the benefits are plentiful, especially if you’re familiar with the real estate market. Just make sure you understand all of the tax rules and work involved before making a final decision.


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