Real Estate

How to Invest With a Real Estate IRA

Last Updated on March 29, 2023 by Mark Ferguson

Many people think an IRA can only be used to invest in stocks or mutual funds. However, there are many investment options when investing with an IRA that many investors are unaware of, even real estate or bitcoin. It is not complicated to invest an IRA in real estate and it can be an awesome way to grow your retirement accounts. You have to make sure you use a self-directed IRA when investing in certain assets with an IRA. When choosing a company to hold your IRA, you need to make sure they can help guide you through the process.

What are self-directed IRAs?

IRAs are Individual Retirement Accounts. They were created in 1974 to help people control their own retirement plans. The government gave many tax benefits to IRAs to encourage people to invest their money. The more money people invest, the better the economy does. Self-directed IRAs have been around since 1974 as well, but most banks and brokerage firms do not offer true self-directed IRAs even though they may say they do. It is legal to invest in real estate with an IRA, but it is not as simple as investing in stocks and most banks and brokerages do not allow you to buy real estate with an IRA. There are many companies that do allow you to buy real estate in an IRA so do not give up when your large brokerage account says you can’t do that.

Self-directed IRAs can be invested into a number of assets including:

  • Real estate (homes, apartments, condos, commercial property, billboards, offshore real estate, trust deeds, notes and more)
  • Contracts of sale
  • Foreign sales corporation stock
  • Gold bullion, palladium, US Treasury gold and silver coins
  • Limited liability companies (LLCs)
  • Limited partnerships
  • Securities, CDs, stocks, bonds, mutual funds
  • Tax lien certificates
  • Crypto Currency
  • Much More

How hard is it to set up a self-directed IRA?

It is not difficult to set up a self-directed IRA; you just have to find the right custodian. With a little help, you can easily roll over assets from a regular IRA into a self-directed IRA. However, you cannot simply start buying real estate with money in your IRA; there are many regulations and rules. When you buy real estate or other assets with a self-directed IRA, you are not buying the asset, the IRA is. All the money has to come from the IRA and all money you make has to go back into the IRA.

Since the IRA has to buy the asset, you must have a custodian handle the transaction for you. There are companies that are set up to act as custodians and walk people through the process of buying assets with a self-directed IRA. uDirect IRA Services is a great company that I use and helps investors buy real estate, notes, and other assets with their IRA. They can also help with transferring your money over to a self-directed IRA.

Why would you want to invest money in an IRA?

IRAs have tremendous tax benefits and that is why so many people use them for retirement plans. Traditional IRAs allow you to deduct contributions from your taxes on the money you put into your IRA. You will have to pay taxes on that money when you withdraw it from your IRA in retirement. The retirement age is considered 59 ½ by the United States government.

If you withdraw money from your IRA before 59 ½, you have to pay all income taxes plus a ten percent penalty in most cases. If you withdraw money early for college, a first home purchase, medical expenses, health insurance, or disability you may be able to avoid the 10 percent penalty. Always check with your attorney or accountant for specific questions regarding IRAs or legal questions.

If you invest in a ROTH IRA, you pay taxes on the money you invest into the IRA. The advantage of a ROTH IRA is that if you wait until age 59 ½, no taxes are paid on the money as it is withdrawn. There are income restrictions on a ROTH IRA so check with your accountant!

The great thing about a ROTH IRA is you can invest $50,000, turn it into $500,000, and only pay taxes on the $50,000.

How I used my IRA to invest in real estate

I started an IRA when I was younger and put some money into it but not very much. I think retirement accounts can be great for some people but I prefer to have more flexibility with the money I invest. I don’t want to have to wait decades to withdraw it since I have so many different things going on now. A few years ago I converted that IRA to a self-directed IRA that I could buy real estate in, and bought a turnkey property in Cleveland. This is the only time I have invested out of Colorado and it has been an okay property but it has not had nearly as good of returns as the other properties I have purchased.

One of the downsides to using the IRA was I used cash to buy the property because you have to be very careful using loans and they must be non-conforming. I had about $50k in my IRA so I had to buy in another market with properties that cheap. I paid $45,000 for the house and it has been rented for $700 to $800 a month the last few years. I think it went down in value after I bought it but has since increased a little bit.

What are the challenges with investing in real estate with an IRA?

When I buy rental properties, I usually buy houses that need work so I can buy them below market value. I think it would take a little more effort to buy houses and repair them with a self-directed IRA, but the main difference would be the IRA is paying for all the repairs and carrying costs while the work is being done. You would have to make sure you have enough money in your IRA to cover all the costs of your investments. You can only contribute a limited amount of money to your IRA in one year in most cases so you have to make sure you have a cushion available if you end up having a big repair bill. 

It is also important to keep in mind that you cannot do any of the work required to fix up the property. You would need to have an arm’s length third party do the work. An IRA is supposed to be an investment, not a business or job. You should have a property manager manage the properties as well.

When you buy the property and pay the expenses it all comes from the IRA and the IRA’s name, not yours. It can also be more expensive to have a self-directed IRA since there are more hoops to jump through.

What alternatives are there to investing in real estate with a self-directed IRA?

Besides real estate, there are some great alternatives to invest in with a self-directed IRA.

  • Notes: Notes are loans made against real estate. They can be bought as either non-performing or performing. You essentially become the bank. You can find much more information on notes here.
  • Private money: Private money can be loaned to investors who are investing in real estate. I wrote about the subject here in much more detail. I use private money from my sister to help fund my fix and flips. You can use money from your self-directed IRA to loan to investors and make 8 to 12 percent interest on a secured asset.
  • Gold: Gold is a great way to diversify your investments and you can use a self-directed IRA to invest in Gold or other commodities.
  • Crypto Currency: Yes you can buy bitcoin and other crypto currencies with an IRA! I even bought some coins recently.

Can you invest in real estate with a 401k?

Self-directed investing is not limited to an IRA; you can also use a self-directed 401k plan to invest in real estate or other assets. You may be able to convert your 401k to an IRA. You may also be able to borrow against your 401k to invest in real estate as well! Check with your accountant to see what options you have!


If you have an IRA or a 401k and want to invest in real estate, you do not have to cash out the retirement accounts and in the process pay huge tax penalties. You can convert those accounts to self-directed IRAs or 401ks and use the money from your retirement accounts to build a nest egg. I personally prefer the flexibility of investing outside a retirement account.

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