Real Estate and Self-Directed IRAs

Self-Directed IRA Growing in Popularity


self-directed IRAIf you are contemplating adding real estate to your investment portfolio you may want to consider a Self-Directed IRA as a possible financing option.  With the recent downturn in the real estate market, values for real estate in some markets have plummeted by as much as 50%, investors are looking at the use of self directed IRAs for a source of financing.

Basics of the Self-Directed IRA

In addition to real estate, a Self-Directed IRA can hold secured and unsecured notes, trust deeds, limited partnerships, private stock and other nontraditional investments.  You can also use your Self-Directed IRA to buy a future retirement home, however you can't live in the home until you retire. You also cannot put a property that you currently own into your Self-Directed IRA nor can your business lease space in property held in your IRA.

An IRS approved Self-Directed IRA Custodian is required to manage financial transactions. Not all custodians offer Self-Directed accounts and may limit your investment choices.  The IRA Custodian will purchase the property and ensure title is in the name of the IRA account or LLC  and will also handle all of the required IRS reporting and provide quarterly financial statements to the account owner.

 Self-Directed IRA Prohibited Transactions

IRC § 4975(c) (1), identifies prohibited transactions to include any direct or indirect:

  • Selling, exchanging, or leasing any property between a plan and a disqualified person. For example, your IRA cannot buy property you currently own from you.
  • Lending money or other extension of credit between a plan and a disqualified person. For example, you cannot personally guarantee a loan for a real estate purchase by your IRA.
  • Furnishing goods, services, or facilities between a plan and a disqualified person. For example, you cannot use personal furniture to furnish your IRAs rental property.
  • Transferring or using, by or for the benefit of, a disqualified person the income or assets of a plan. For example, your IRA cannot buy a vacation property you or your family intend to use.
  • Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in his own interest or for his own account. For example, you should not loan money to your CPA.
  • Receiving any consideration for his or her personal account by a disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan. For example, you cannot pay yourself income from profits generated from your IRAs rental property.

All income and expenses such as insurance, repairs, and taxes will be paid from funds in your Self-Directed IRA,  so you will need to have funds available in your account.


I would like to hear from you if you have used a Self-Directed IRA to purchase real estate.

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8 Responses to Real Estate and Self-Directed IRAs

  1. Chella 08/26/2015 at 6:53 pm #

    I have not registered for the Self-Directed IRA system though I am considering it. However, there are a number of questions that have been lingering in my mind before I make the decision. How does it work? Do the ordinary retirement schemes offer Self-Directed IRA services? And how secure are they so that I don’t loose my retirement savings easily?

  2. Jayson @ Monster Piggy Bank 08/22/2015 at 7:01 pm #

    With a self-directed IRA, I am not limited to the traditional investment options offered by most banks. I have much greater flexibility in the number of investment choices. Instead of being limited by a list of stocks, bonds, and CDs, I have the freedom to control my retirement investments.

  3. SB @ One Cent At A Time 09/09/2011 at 6:11 pm #

    I was not much aware of self directed IRA. May be I am not allowed to invest this route since I am not yet naturalized. Will think about it in future, good thing blogging is you get to learn so many things from others. Thanks for posting on this topic and increasing my inquisitiveness.

  4. krantcents 09/09/2011 at 4:30 pm #

    I wish this was around when I invested in income property.

  5. Eric J. Nisall 09/09/2011 at 7:11 am #

    I found a similar result, Paul. And, the firms that I did find (probably the same ones as you), I had never heard of, which really shouldn’t be the only criteria, but it still makes a difference as far as trust is concerned.

  6. Eric J. Nisall 09/08/2011 at 7:16 pm #

    People have been talking about self-directed IRA for a number of years now (I think the first time I heard about it was in 2008). It all sounds really good in theory, especially if you’re been saving for a long time and have a significant amount of money to invest, but the lack of options is something I would be wary of. There aren’t that many custodians that offer this type of service, and unless I’m mistaken, none of the major brokerages do. I think that if it became more popular and available, it would certainly help to stabilize the housing market at the very least.

    • Paul 09/08/2011 at 9:44 pm #

      The type of SDIRA mentioned in the article is a “checkbook” SDIRA which gives the account owner the ability to pay for maintenance and repairs directly from the account. I was only able to find 9 firms that offer this type of SDIRA. There are other firms that offer SDIRA but you are right, the investment options are very limited and real estate is not an option. Down payments are pretty high as well, 30% or more however, with prices as low as they are and if you have the funds, the SDIRA might be a decent option if you are looking to invest in real estate.


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