Investing in Real Estate With Your IRA: What Investors Need to Know

Nate Hare | Directed IRA

Many real estate investors focus on finding deals, raising capital, and managing cash flow, but overlook one of the most flexible tools available to them: their retirement account.

Contrary to common belief, IRAs have always been permitted to invest in real estate. They can own rental properties, participate in private real estate partnerships, lend money as private lenders, or invest in commercial and multifamily projects. The limitation most investors encounter is not a legal one, but a custodial one. Traditional brokerage firms restrict IRAs to publicly traded assets, which is why many investors never realize real estate is an option.

A self-directed IRA removes those investment restrictions. It allows the account owner to direct retirement funds into investments permitted by law, including real estate. For investors, this creates an opportunity to align long-term retirement planning with real estate strategies they already understand.

One important distinction is ownership. When real estate is purchased with IRA funds, the IRA is the investor, not the individual. The purchase contract, title, expenses, and income all flow through the retirement account. Any rental income or gains from a sale are returned to the IRA, where they continue to grow either tax-deferred in a Traditional IRA or tax-free in a Roth IRA.

This structure can be especially powerful when investors recognize their IRA as another source of capital. Many investors have significant balances sitting in IRAs or old employer 401(k)s that are invested passively. By rolling those funds into a self-directed IRA, they can deploy retirement capital into real estate opportunities without taking distributions or triggering taxes.

Self-directed IRAs are commonly used in a variety of real estate strategies. Some investors purchase single-family or small multifamily rentals. Others invest alongside partners in LLCs or funds that own larger properties. Many use their IRA as a private lender, earning interest secured by real estate. The strategy chosen depends on the investor’s experience, risk tolerance, and long-term goals.

For investors seeking more control, an IRA-owned LLC structure is sometimes used. In this setup, the IRA owns an LLC, and the LLC executes transactions on behalf of the IRA. While not required, this approach can streamline transactions for active investors, particularly those making frequent investments. The key takeaway is not that every investor should immediately use retirement funds for real estate, but that it is an option worth understanding. A self-directed IRA can complement traditional investing, expand available capital, and provide tax-advantaged growth when used correctly.

For investors looking to learn more about how self-directed IRAs work and how they are commonly used in real estate investing, visit directedira.com.