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Advantages to Investing Your Self-Directed IRA in Real Estate

Investing IRABefore we dive into the benefits of using your self-directed IRA to invest in real estate, we have to stress that the rules that the Internal Revenue Service has set must be followed; the tax-deferred status of your IRA account depends on it. Failure to comply with IRS rules could lead to disqualification of your IRA, and severe tax consequences.

With all of that in mind, let’s get to it!


With a self-directed IRA, you can purchase:

  • Apartments, duplexes, commercial real estate, and land
  • Investment homes (single family)
  • Deeds of trust, mortgages, promissory notes

Not only are your options in what type of property, but you also have an abundance of options in finances. Real estate in an IRA can be purchased without being 100% funded through your IRA. Partnering with others and using undivided interest are popular options for funding.

Your self-directed IRA can also purchase the real estate mentioned above using financing, so long as the loan is non-recourse. If you choose to use financing, unrelated business income tax, UBIT, will apply.


All expenses related to the property owned through your IRA must come directly out of your IRA. So improvements, property taxes, condo association fees, maintenance, general bills, all fall under expenses, so no costs concerning this real estate are paid out of pocket.


True portfolio diversification can only be achieved if the self-directed IRA holder is wanting full financial control, and is also only really appeal to those that are willing to do a little risk-taking. This is one of the main reasons why self-directed IRA’s aren’t for everyone. However, the benefits oftentimes outweigh any drawbacks, as we talk about below.


In an article by Market Watch, they talk about specific situations and experiences that individuals have had with their own self-directed IRA. One example talks about a man named Dick Eschleman, a 73-year-old semiretired investor in Sonoma, California. “… A decade ago, he got fed up with Wall Street and dumped all of the mutual funds in his IRA. Instead, he began using the funds to make subprime loans on prefabricated houses. The switch, Eschleman says, enabled him to turn the $200,000 he started with in the account into nearly $1 million. Eschleman says his returns now average 15 % a year—even after accounting for some loans that inevitably go bad.”

Though that’s only one example of someone’s success in real estate, the brilliant thing about self-directed IRA’s is that the investment possibilities are almost endless. Making your money work for you is everyone’s end-game, and being a little creative and smart with what’s available to you will take you a long way.