Different Types of Real Estate Assets in a Self-Directed IRA

A Self-Directed IRA can hold certain types of real estate, giving investors the opportunity to diversify their retirement portfolios beyond traditional stocks and bonds.

However, investing in real estate through a Self-Directed IRA is not the same as placing your personal home into a retirement account. You cannot hold your primary residence—or any property you personally use—inside a Self-Directed IRA. Doing so could create a personal benefit and violate IRS rules.

Instead, a Self-Directed IRA can invest in real estate held strictly for retirement purposes. Eligible investments may include single-family rentals, multi-family properties, commercial real estate, farms, raw land, and more.

This flexibility is one reason many real estate investors choose Self-Directed IRAs. If you want to diversify your retirement portfolio with real estate assets, it helps to understand the investment options that may be available.

Farms and Raw Land

Land has long attracted investors because supply is limited and long-term demand can create appreciation potential. Farms and raw land can both be held in a Self-Directed IRA, provided the investment follows IRS rules.

Farmland may generate income through agricultural leases, crop production arrangements, or other permitted investment structures. Raw land may be held for long-term appreciation, future development potential, or leasing opportunities.

That said, land does not always generate immediate income. Investors should plan for ongoing expenses such as property taxes, maintenance, insurance, and other carrying costs. All expenses must be paid from the IRA, not from personal funds.

Single-Family Homes

Single-family rental homes are one of the most common real estate investments held in Self-Directed IRAs.

They may offer:

When a Self-Directed IRA owns a rental property, rent must be paid directly to the IRA. Property expenses must also be paid from the IRA. You cannot personally collect rent, pay repairs out of pocket, or use the property yourself.

Many investors work with property managers to help maintain separation between personal activity and IRA-owned property. This can help keep the investment operating within the retirement account structure.

Multi-Family Properties

Multi-family properties, such as duplexes, triplexes, and apartment buildings, can also be held in a Self-Directed IRA.

These properties may provide multiple rental income streams from a single investment. If one unit becomes vacant, income from other units may help offset the impact.

Multi-family real estate can also offer economies of scale, but it often comes with more maintenance, tenant management, and operating expenses than single-family homes.

If financing is used, the loan must generally be non-recourse, meaning the lender’s only collateral is the property itself. Investors should also be aware that debt-financed real estate inside an IRA may create UDFI or UBIT tax considerations.

Commercial Real Estate

Commercial real estate can include office buildings, retail centers, industrial properties, warehouses, and other income-producing business properties.

For some investors, commercial real estate is appealing because it may involve longer lease terms, established tenants, and different income structures than residential property. Depending on the lease arrangement, certain tenants may be responsible for expenses such as taxes, insurance, or maintenance.

However, commercial properties can also involve higher purchase prices, vacancy risk, market sensitivity, and more complex lease agreements. As with any real estate investment, due diligence is essential.

Important Rules for Real Estate in a Self-Directed IRA

Real estate investing through a Self-Directed IRA offers flexibility, but it also comes with strict rules.

Key guidelines include:

Following these rules helps preserve the tax-advantaged status of the account.

Is Real Estate Right for Your Self-Directed IRA?

Real estate can be a powerful way to diversify a retirement portfolio, especially for investors who already understand property investing. Whether you are interested in rental homes, raw land, farms, multi-family units, or commercial properties, a Self-Directed IRA can provide access to real estate opportunities beyond traditional brokerage investments.

Interested in learning more about Self-Directed IRAs?  Contact us at 866-7500-IRA (472) for a free consultation or download our free guide.