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retirement IRA account

Is Buying Real Estate Using Self-Directed IRA a Good Investment?

A Self-Directed IRA (SDIRA) is an individual retirement account that allows you to have increased control over your investments and retirement savings. Traditional IRA offers are limited to stocks, bonds, mutual funds, ETFs, and CDs. SDIRAs permit you to invest in real estate, precious metals, notes, tax liens certificates, private placements, and several other investment options.

What is a Self directed IRA for real estate?

A self directed IRA real estate account is an excellent vehicle for investing. With a SDIRA, you can invest in raw land, development projects, single-family, multifamily, commercial, industrial, and rental property of any kind. With any SDIRA investment, there are IRA rules and prohibitions. When first hearing about SDIRA accounts, the first question many people ask, “Can I use my self-directed IRA to purchase my home?” 

The answer is NO. You CANNOT use your IRA to purchase a home for your personal use or the use of direct ascendancy or dependency relatives. You CANNOT in any way self-deal or directly benefit from the SDIRA investment.

Man on top of Mountain

How to set up a self-directed IRA?

To set up a self-directed IRA, you go through a Trust company referred to as an IRA custodian. There are many IRA custodians from which to choose. Custodians vary in services provided and in their fee structures. 

All custodians will walk you through the process of setting up your self-directed account. 

Setting up the SDIRA is the least complicated aspect of the self-directed retirement savings process. You can open a new IRA with the custodian, or you can roll over/transfer existing retirement funds from another account into the SDIRA. 

Some custodians limit the investment options to particular sectors, so ensure the custodian you select allows you to invest in the asset class of your choice. 

How to make money out of an IRA Real Estate Investment?

With an SDIRA, you have direct control over the assets you select. You can increase your ROI when you invest in real estate that brings a higher yield. This is a two-sided coin, though, because with increased returns comes increased risk.

With your retirement funds in an SDIRA, you can protect against the economic fluctuation of the volatile stock market. This diversification allows you to divest in non-correlating assets. 

Those of us who lived through the 2007 to 2010 recession know the importance of investing outside Wall Street.

The earnings in your IRA real estate investment are tax-deferred and can grow at a faster rate than non-sheltered funds.


What is the Best self directed IRA for real estate?

There is no one best answer as to which self directed IRA real estate is excellent for IRA investing. You can use a self directed Traditional IRA, a ROTH IRA, or a 401(K) to invest in real estate. Your situation will dictate the best self directed IRA real estate retirement account that works best for your life situation. Consult your accountant and retirement specialist. 

The IRA Rules do not set forth what asset can be invested in with your self-directed account. The IRA Rules dictate what you cannot invest in. Penalties for IRA Rules violation are severe. Your IRA Custodian can advise regarding prohibitions. Your best guide is IRS Publication 590. Know this regulation by heart and follow it to the letter.

How is valuation calculated for IRA real estate?

Real estate held in a self directed IRA real estate is valued like any other real estate property. Each year you must report valuations to your IRA Custodian. 

Appraisals are the safest way to evaluate your property, but they are not required. If audited by the IRS, the appraisal from a licensed Appraiser will receive the least scrutiny. Another source is Realtors, who can provide a Comparative Market Analysis. 

You can, though not advisable, self-evaluate the properties held by a self directed IRA real estate account. For commercial properties, base the evaluation on income. Market trends provide the evaluation source for non-commercial such as residential single-family real estate.

Griping both Hands

Real Estate tax deductions for buying real estate with IRA

Taxes on your IRA investment held in your self-directed IRA are deferred until the funds are withdrawn. The tax deferral allows the retirement funds to grow more rapidly than they would if not sheltered.

The tax disadvantage for buying real estate with IRA funds is that you cannot claim losses or depreciation. 

The most significant advantage of buying real estate with IRA retirement funds is investing in assets that return higher rates of return than traditional retirement funds. With suitable self-directed IRA investments, you can double or even quadruple your earnings. Over a lifetime, the differences can be extraordinarily significant. 

You have direct control over where the fund is being invested. 

The SDIRA also allows you to invest in asset sectors with which you are most familiar. 

With traditional retirement funds, you are vulnerable to the volatility of the market. Not only are your funds susceptible to the constant fluctuations of markets, but you also have no control over where the asset manager is investing your retirement funds. 

When buying real estate with an IRA fund, you have complete control.

Companies that handle IRA for real estate?

There are many companies and trust funds that provide IRA Custodial services. A web search will produce a good quantity of prospects. Find a custodian that allows investment in the investment sector that you are most familiar with and want to invest.

Research the fee structures of each custodian and compare the fees across the board. Select the custodian that best suits your needs.

Risks Involved with Self-directed IRA

There are a couple of risks, and they are not insignificant. The IRS rules for self-directed retirement plans are not difficult or complicated. They are, though, stringent. Even minor and unintended violations can be devastatingly costly. Violations of the IRA rules can result in fines, penalties, and eradication of all tax benefits accrued. There is potential to lose all of the fund’s earnings plus some or all of the contributions. 

The IRS self-directed Rules do not outline what you can do. Instead, the rules dictate what is prohibited. 

Thoroughly familiarize yourself with the IRA Rules of prohibited transactions. Your IRA Custodian can help you understand and comply with the IRS self-directed Rules, but ultimately, it is your responsibility to ensure that you act within compliance.

The other factor to consider is that IRA investing in non-traditional assets that project higher returns also carries a higher risk. Generally, there is a correlation between yields to risk. The higher the potential return, the higher the risk. 

When taking control of your retirement, invest only in assets that you know and understand.

Building with car

Ways to Avoid Fraud with Self-Directed IRAs

The U.S. Securities and Exchange Commission (SEC) offers the following suggestion for identifying fraud so that fraud can be avoided.

Ways that fraudsters trick the unsuspecting investor:

  • Misrepresentations regarding custodial responsibilities
  • The exploitation of Tax-deferred account characteristics
  • Lack of information about alternative real estate investments

Ways to avoid fraud with self-directed IRAs:

  • Verify the information in self-directed IRA account statements
  • Avoid unsolicited investment offers
  • Ask questions
  • Be wary of “guaranteed” returns
  • Consult a professional

Frequently Asked Questions about Self-Directed IRA

What banks offer self-directed IRA?

Very few banks or brokerage services offer IRA Custodianship. Those who do will most likely limit the investment options to the traditional categories of stocks, bonds, mutual funds, ETFs, and CDs. 

Can I set up a self-directed IRA myself?

Yes, you can set up a self directed IRA yourself. You are the one responsible for setting up your own SDIRA. You MUST, however, set it up with an IRA Custodian, and it MUST always remain with a Custodian. 

It is possible to set up what is referred to as a checkbook IRA. The checkbook IRA allows your self-directed LLC that holds the IRA to establish a bank account. Your LLC can directly disperse funds from the checkbook IRA account without Custodian authorization with the checkbook IRA established with your CustodianConsult your Custodian for further information.

Is a self-directed IRA a good idea?

Yes, a self-directed IRA can be an excellent vehicle for investing passively in real estate syndications. It does require that you take much more responsibility for your retirement. 

With a traditional IRA, you can contribute to the fund and forget about it. For your self-directed IRA to grow, you must make wise investment decisions based upon your thorough due diligence.

Can you buy a house with a self-directed IRA?

You can buy any sector of real estate with your self-directed IRA. You CANNOT buy a house for your use or the use of those in the direct line of ascendancy. Even a vacation home for your use will violate the Rules governing prohibited transactions. According to the Rules, you CANNOT even spend one night in your self-directed IRA property.

Watching the river


Self-directed retirement accounts have been available since Congress first established IRAs and 401 K accounts. Even though they have always been an option, most people are not aware of their existence. 

Traditional banks and financial brokerages do not offer them or promote self-directed retirement accounts.

Even though self-directed IRAs are not provided through mainstream financial institutions, they provide excellent opportunities for increased growth of your retirement funds.

With information and education, anyone can open a self-directed retirement fund. An SDIRA is an excellent way to invest your retirement funds if you want to take more responsibility for the growth of your retirement.

Suppose you want to get out of the constantly fluctuating public markets and take control of your retirement. In that case, a self-directed IRA is an excellent option.


Leaping into the unknown can be overwhelmingly frightening. If you are considering opening or moving existing retirement funds into a self-directed IRA, schedule a FREE 30-minute call. I’m always happy to share my experiences. I am not an IRA Custodian, so I have nothing to sell. I am very familiar with SDIRAs as I’ve used mine to invest for many years. If you prefer email, send me a note with your questions and concerns at

About the Author – Dr. Allen Lomax

photo of author dr. allen lomaxWith careers in academia, podcasting, and real estate investing, Dr. Allen Lomax inspires us to break open our minds’ secrets to success. Through passive real estate investments, he helps engaged professionals create time freedom to live abundantly in all life’s areas.