What You Can and Can’t Do with Real Estate in A Self-Directed IRA

The equation is simple. More real estate in a retirement portfolio can lead to more freedom. You're not relying on stocks and bonds for your retirement but instead generating income and appreciation from a portfolio with alternative assets. But using a Self-Directed IRA to hold these assets also means you have to be aware of some slightly different rules. You can't, for example, go and live in a house you buy via an IRA; the house belongs to the IRA, and isn't for your immediate short-term use. Want to know more? Let's explore some Can and Cant's for real estate investing with a Self-Directed IRA.

You Can…Buy a Wide Range of Properties in a Self-Directed IRA

A Self-Directed IRA opens doors to many types of real estate. You're free to choose single family homes, multi-unit rentals, land, or even commercial buildings. Investors like this flexibility because it lets them build a retirement plan that reflects how they see long-term value. As long as the purchase is made by the IRA and held in the IRA’s name, you’re operating within the rules.

You Can…Earn Rental Income and Long-Term Appreciation

Income is one of the biggest reasons people hold real estate in a retirement account. Rent flows into the IRA and stays tax protected as long as it remains in the account. Appreciation works the same way. When the property gains value over time, those gains grow inside the IRA structure. This creates a steady rhythm that can support long-term retirement plans.

You Can…Use Property Managers to Handle the Physical Work

Because you can’t perform repairs yourself, many Self-Directed IRA investors rely on property managers. They take care of tenant issues, maintenance, and day-to-day decisions. Their invoices get paid from IRA funds, keeping everything clean and compliant. This setup helps investors stay away from prohibited transactions while still running an effective rental operation.

You Can…Keep Funds in the IRA to Cover Property Expenses

Real estate brings operating costs, and a Self-Directed IRA has to pay them directly. You can keep cash reserves in the account to handle repairs, taxes, insurance, or vacancies. Planning ahead makes the experience smoother. It also reduces the likelihood of scrambling for solutions when something unexpected happens.

You Can’t…Use the Self-Directed IRA Property for Personal Benefit

This is the rule that catches many beginners by surprise. You can’t vacation in the property. You can’t let your children or parents stay there. You can’t even enter the home to fix a leaky faucet. Any personal benefit, even a small one, creates problems with the IRS because the property is considered a retirement asset, not personal property.

You Can’t…Sell Property to (or Buy Property From) Disqualified Persons

Your IRA can’t transact with certain family members, including parents, children, and spouses. These disqualified persons can’t buy property from your IRA and can’t sell property to it. The rule exists to prevent people from shifting personal assets into retirement accounts or using retirement accounts for indirect personal gain.

You Can’t…Forget That the Self-Directed IRA Holds Title to the Property

Every document, every agreement, and every closing lists the IRA as the owner. You’re the decision maker, but the IRA is the legal owner. That structure is what keeps the account tax protected and aligned with IRS rules.

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