Commercial Real Estate Investing as an IRA Diversification Strategy

As individuals, we strive to maximize returns and build wealth for a secure retirement. One wealth-building strategy that has gained significant traction is commercial real estate investing in a self-directed real estate IRA. By diversifying your IRA with commercial properties, you tap into the potential of this lucrative asset class while enjoying the tax advantages of an IRA. In this article, we explore the benefits, considerations, and steps involved in investing in commercial real estate in a self-directed IRA.

Before we dive into the specifics, let’s first understand what self-directed IRAs (SDIRAs) are and why they are popular among savvy investors.

Unlike traditional IRAs, self-directed IRAs offer a wider range of investment options, including real estate, precious metals, private equity, private mortgages, and more. This flexibility allows investors to take greater control over their retirement funds and explore alternative avenues for wealth creation. Self-directed accounts include traditional and Roth IRAs, SEP and SIMPLE IRAs, solo 401(k)s, Coverdell education savings accounts (ESAs), and health savings accounts (HSAs).

Understanding Commercial Real Estate

To embark on a successful commercial real estate investing journey, it’s crucial to have a solid understanding of the different types of commercial properties available. This includes office buildings, retail spaces, industrial properties, expansive multifamily property, and more. Each has unique characteristics and potential returns. So, it’s essential to choose the right investment based on your goals and risk appetite.

Advantages of Commercial Real Estate Investing

Commercial real estate offers several advantages that make it an attractive investment option for self-directed real estate IRAs. Let’s explore some of these benefits.

1. Potential for Higher Returns

Commercial properties have the potential to generate higher cash flow and appreciation compared to residential properties. The ability to lease spaces to businesses and organizations can result in steady rental income, providing a consistent return on investment.

2. Diversification Benefits

Adding commercial real estate to your portfolio provides diversification, reducing the overall risk exposure of your retirement funds. By spreading your investments across different asset classes, you mitigate the impact of market volatility and potentially enhance your long-term returns.

3. Tax Advantages

Investing in commercial real estate in a self-directed IRA offers tax advantages. Rental income and capital gains generated from the property are tax-deferred in a self-directed traditional IRA. You don’t pay taxes on income until you take distributions in retirement. If you have a self-directed Roth IRA, those distributions are tax free. This results in significant savings and a more efficient way to grow your retirement wealth.

IRA Diversification Strategy with Commercial Real Estate

Diversification is a fundamental principle of successful investing, and it applies A colorful skyline of tall buildings illustrating commercial real estate investing retirement portfolios as well. Commercial real estate investing in your self-directed IRA further diversifies your holdings and potentially enhances your long-term growth.

Here’s a step-by-step overview of how to invest in commercial real estate using an IRA:

1. Choose a Self-Directed IRA Administrator

Select a reputable self-directed IRA administrator that allows real estate investments. Ensure they have experience in handling commercial property investing within IRAs. SDIRA administrators facilitate the administrative details of your investing transactions within IRS rules. They do not help you locate and vet investments. They don’t sell or give advice on your investment choices.

2. Fund Your Self-Directed IRA

Transfer funds from your existing IRA, from an old employer 401(k), or contribute new funds to your self-directed IRA. Make sure you comply with contribution limits and any other regulations for transfers and rollovers.

3. Identify and Analyze Commercial Real Estate Opportunities

Conduct thorough market research and due diligence to identify opportunities that align with your investment goals. Consider factors such as location, property condition, rental demand, and appreciation. As a SDIRA owner, this due diligence is your responsibility. Remember, your SDIRA administrator plays no part in helping you vet investments.

4. Make an Offer and Conduct Negotiations

Once you’ve identified a suitable property, make an offer, and negotiate the terms of the purchase. Engage professionals such as real estate agents, attorneys, and property inspectors to assist you throughout the process.

 5. Purchase the Commercial Property

Coordinate with your self-directed IRA administrator to complete the necessary paperwork and transfer funds from your IRA to acquire the commercial property. Ensure all transactions are in compliance with IRS regulations governing self-directed IRAs.

6. Manage the Investment

Property management is a critical aspect of commercial real estate investing. The best route is to hire a professional property management company to handle day-to-day operations, tenant relations, and maintenance. These and other investment-related expenses are paid with IRA funds. As the IRA owner, you’re prohibited from performing these duties for pay or for free. Providing “sweat equity” (free work) on your investment is a prohibited transaction, as is reimbursing yourself for work or expenses.

7. Monitor Performance and Reap the Benefits

Regularly review the performance of your commercial real estate investment within your self-directed IRA. Monitor rental income, property value appreciation, and overall market conditions. Enjoy the benefits of potential cash flow, tax advantages, and long-term wealth accumulation. If the investment is underperforming, you decide when to sell it. Any sale profits, including capital gains, are deposited into your SDIRA on a tax-sheltered basis.

Considerations and Risks of Commercial Real Estate Investing

While investing in commercial real estate through a self-directed IRA can be rewarding, it’s essential to consider some key factors and risks:

Market Analysis and Due Diligence: Thoroughly research the local market and analyze the potential risks and rewards associated with commercial real estate investments. Consider factors such as vacancy rates, rental demand, economic indicators, and zoning regulations.

Property Management and Maintenance: Managing a commercial property can be time-consuming and complex. Ensure you have a plan in place for property management, including tenant selection, lease agreements, property maintenance, and compliance with local regulations.

Liquidity and Exit Strategies: Commercial real estate investments typically require a more extended holding period compared to other asset classes. Consider your desired investment horizon and have a clear exit strategy in place. Understand that commercial properties may take longer to sell than residential properties.

Examples of Investing in Commercial Real Estate

To illustrate the potential of investing in commercial real estate through self-directed IRAs, let’s explore a couple of real-life examples:

Office Space Investment: John, a self-directed IRA investor, purchased an office space within his IRA. He leased it to a stable, long-term tenant, generating consistent rental income. Over time, the property appreciated in value, providing John’s IRA with a significant return on investment upon selling the property.

Retail Property Investment: Sarah, another self-directed IRA investor, invested in a retail property through her IRA. She leased it to a thriving retail business, her IRA benefiting from both rental income and a share of the business’s success. This dual income stream significantly boosted Sarah’s retirement wealth.

Car Wash Investment: Neil used his self-directed IRA to invest in a car wash. He purchased commercial property and the equipment needed to run a car wash with IRA funds. His IRA funds also paid contractors to build the car wash as well as the employees’ salaries. The car wash became a successful business that earned a consistent stream of tax-sheltered income in his retirement plan.

These examples highlight the potential of commercial real estate investing within self-directed IRAs. However, it’s important to note that every investment carries its own risks and rewards. What works for one investor may not work for another.


Investing in commercial property through a self-directed real estate IRA is a powerful strategy for diversifying your retirement portfolio and building long-term wealth. By taking advantage of the tax benefits and prospective returns offered by commercial properties, you have the potential to secure a financially sound future.

However, it’s essential to approach commercial real estate investing with careful planning, market knowledge, and a clear understanding of the risks involved. Engage with professionals, conduct thorough due diligence, and monitor your investments diligently to ensure the best possible outcomes.

As always, consult with a qualified financial advisor or tax professional before making any investment decisions. With the right strategy and a well-informed approach, you can leverage the potential of commercial real estate investments within your self-directed IRA and pave the way for a prosperous retirement.

Additional resources on Investing in Commercial Real Estate in an SDIRA:

Diversification in Commercial Real Estate

Top 10 Things to Know About Real Estate in an IRA in Any Economy

7 Red Flags of Commercial Real Estate Investing with Dan Hanford


If you have questions about commercial real estate investing in a SDIRA, contact Advanta IRA today.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.