Single-Family Home Investing in a Self-Directed IRA

People have to live somewhere—and if you’re an investor, that works in your favor. As of 2021, there were about 82 million single family homes in the U.S., mostly owner-occupied. But renting a single-family home is a viable option for many. And from the investor’s perspective, holding a Real Estate IRA—or a Self-Directed IRA—is a great way to own this property and enjoy rental income towards your retirement without a heavy tax burden. But how does it work, and what can you expect if you hold a single-family home in a Self-Directed IRA? Let’s explore.

The Rules of Single-Family Home Investing in a Self-Directed IRA

Investing in a single-family home through a Self-Directed IRA comes with a few rules you have to follow. First, you can’t live in the property yourself or rent it to family members, since that would count as receiving a personal benefit from your retirement account. The home is strictly an investment, which means tenants have to be third-party renters with no personal connection to you.

Another important rule is that your IRA—not you—owns the property. That means any documents, from the purchase agreement to rental contracts, have to be in the name of your IRA. You can’t buy the property from yourself or a close family member, and once it’s in your IRA, you can’t personally manage or maintain it. That means no DIY repairs, no collecting rent directly, and no handling tenant issues yourself. Instead, you’ll need to hire a property manager or work with professionals to keep the investment running smoothly.

If you want to know more about the intricacies of investing in real estate like single family homes through a Self-Directed IRA, we encourage you to check out our Real Estate IRA information page. You’ll find some key facts and tips that will help introduce you to this world.

Understanding the Financial Benefits

One of the biggest advantages of owning a single-family rental property in a Self-Directed IRA is the potential for tax-deferred or tax-free growth. If you hold the investment personally, you simply don’t get to enjoy that. Yet if your IRA is structured as a traditional account, any rental income goes back into the IRA without being taxed until you withdraw it in retirement. If you have a Roth IRA, you won’t pay taxes on qualified withdrawals at all.

That can make a huge difference in long-term wealth accumulation, especially if the property appreciates in value over time.

Since all income and expenses flow through your IRA, you have to make sure there’s enough cash in the account to cover costs like property taxes, insurance, maintenance, and property management fees. You can’t pay these expenses out of pocket, and you also can’t take rental income as personal cash flow—it all stays within the IRA.

Is Single Family Home Investing Right for Your Self-Directed IRA?

A single-family home can be a solid addition to a retirement portfolio. It offers the potential for a steady income stream and long-term appreciation. But it’s not a hands-on investment in the traditional sense. You won’t be fixing leaky faucets or screening tenants yourself, and you have to be mindful of all IRS regulations to keep your investment in compliance.

If that sounds like what you want—and you’re eager to diversify out of a stock market where the returns can be subject to financial headlines—maybe it’s time to get started.

Interested in learning more? Reach out to us here by dialing 866-7500-IRA.