The Smart Investment Strategy of Real Estate in a Self-Directed IRA

Real estate in a self-directed IRA is the number one strategy of smart investors who choose their own investments to build retirement income. You can do this, too, if you use a self-directed retirement plan. You’ll become part of a growing class of individuals who control their retirement funds and invest in alternative assets to build wealth, diversify their portfolios, and offset potential losses on the stock market.

How Does Real Estate in a Self-Directed IRA Work?

Building tax-sheltered retirement income with real estate in a self-directed IRA opens a considerable number of doors for investors. Real estate has historically proven itself as a viable long or short-term investment since property values have no correlation to the state of the stock market.

IRAs that hold real estate as assets are commonly called real estate IRAs. While the most common asset is an actual piece of property, there are a myriad of other holdings the average individual might not know about.

Examples of real estate investments include:

Investors who are familiar with the ins-and-outs of any particular asset can put their knowledge to work and invest in those assets in a self-directed IRA to grow wealth for retirement.

4 Ways Real Estate in a Self-Directed IRA Earns Income

Property Appreciation

Typically, the value of a good piece of property appreciates over time. Your IRA can invest in different types of real estate (residential, commercial, improved and unimproved land) and hold on to it until the time is right to sell it for a profit. Because your IRA owns the asset, income from the sale is deposited directly The chest of a man in a black suit pointing at a green overlay of houses and tall buildings stretching across the image depicting different types of real estate in a self-directed IRA.into the IRA account and enjoys the tax-sheltered status the account provides. This creates additional capital you can use to reinvest, make improvements on another asset owned by the IRA, or even take as a distribution if you’re of retirement age.

Rental Income

Rental property—single family homes, multifamily units, or commercial property—can provide steady stream of income and tax-sheltered growth in an IRA. You also capture a potential bonus of earning extra income by selling the property during a future peak in real estate price. Here again, income is deposited into the IRA on a tax-sheltered basis. All expenses must be paid from IRA funds (maintenance, upgrades, property management, etc.) since the IRA owns the property. Performing any work yourself is a prohibited transaction you must avoid to protect the tax-sheltered status of your IRA.

Private Mortgages

A private mortgage loan is another example of real estate in a self-directed IRA. While not a tangible asset like property, private mortgages present great potential returns on investments. Your IRA extends loans to individuals who need funds to buy a home and earns income in interest and other loan terms. The property is typically assigned as collateral to back the loan. If the borrower defaults, your IRA takes possession of the house and can sell it to recoup the balance of the loan. As the IRA owner, you vet the borrower and determine the interest rate, term of the loan, payment schedule, etc.

Investing in Tax Liens and Deeds

Timely payment of property taxes is critical to the daily operations of governing municipalities. When homeowners and property owners fail to pay these taxes, the local government takes steps to collect the funds by selling tax lien certificates and tax deeds of the properties to the highest bidder. Investors (including your IRA) purchase liens and deeds and in turn become the collectors of these debts, gaining income most commonly by attaching interest rates to payments the property owner must make until the debt is paid in full.

Why Invest in Real Estate with a Self-Directed IRA?

There are two main reasons people use self-directed IRAs and solo 401(k)s.

    1. To take control of their investing decisions to secure their financial futures.
    2. To invest in assets other than stocks, bonds, and mutual funds.

Real estate investments represent a diverse class of alternative assets, offering more than a few opportunities for individuals to build retirement wealth.

Depending on the amount of funds in your account, you can invest in lucrative real estate deals or start small with limited funds.

The whole point of self-direction is that the investment choices are yours to make. You’re not limited to the assets that conventional retirement plans offer, which are generally of the Wall Street variety and subject to stock market volatility.

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Want More Information on Real Estate in an IRA?

Contact Advanta IRA if you have questions about this article or want to learn how you can buy real estate in your IRA. Knowledge is power—and the more you learn how easy it is for you to take control of your investing decisions, the more empowered you’ll become in making that step to secure a successful retirement future. And as a leader in the self-directed IRA services industry, the team at Advanta IRA can help you every step of the way.

Additional reading about self-directed IRAs:

How a Private Mortgage Works in a Self-Directed IRA or Solo 401(k)

10 FAQs about a Self-Directed IRA (SDIRA) + Alternative Investments

A Beginner’s Guide to Investing in Real Estate Syndications with IRAs



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.