You can successfully invest in real estate with an IRA if you pick the right property under the right conditions—and the investment proves fruitful. You can choose many different assets that have the potential to build income in your retirement account, and you don’t necessarily have to have mountains of money in your retirement plan to invest.
Four common real estate assets people invest in with self-directed IRAs are 
rental properties, renovation projects, tax liens, and private lending options. While rentals and rehabs can be a bit time consuming depending on the circumstances, private lending is an easier way to earn a bit of tax-sheltered income in your IRA. Investing in tax liens and deeds present a cheaper way to invest, without having to purchase property.
Below is a summary of how real estate assets work in an IRA.
4 Popular Ways to Invest in Real Estate with an IRA
1. Rental property
Rental property in an IRA can be quite the lucrative asset if you have an eye for a good neighborhood or business district and a keen sense of pricing it right. The trick with rentals is obviously keeping them rented out, whether it’s a residential home or commercial property with multifamily units or office space. If you’re successful doing that, these assets have the potential to provide a steady stream of income, which is deposited directly into your retirement account.
Keep in mind that your IRA owns the property, not you. After you make the purchase, you need ensure the account has adequate funds remaining to pay for any expenses the property incurs. You are not allowed to pay for any expenses personally. Sometimes maintenance can be costly, sometimes not. Either way, just make sure you’re covered.
2. Rehab-and-flips
These investments are so popular and often so successful that there are multiple TV shows you probably watch to show you how it’s done. While the stars make it seem like a ton of fun, renovations are a bit more involved than the shows illustrate. Certainly, you’ve seen the nightmare projects, and that can be a real deal. So, while there is money to be made on rehab-and-flips in an IRA—your success depends on the shape of the property, the location, and the work that must be done to make it a best seller. The goal is to make a profit, after all, and performing due diligence on these investments is critical.
Additionally, you are not allowed to perform any of the renovation work on property your IRA owns. You must hire a third party to do so. And, here again, you must budget your retirement funds properly to ensure the account has the capital to buy the investment and pay for the renovations (including materials). Because your IRA owns the asset, all income and expenses flow directly into and out of the account.
3. Private Lending
Private lending from an IRA is an interesting way you can invest in real estate—without even buying a piece of property. Essentially, your retirement plan plays the part of a bank and extends funding to individuals or even businesses that need cash. As the IRA owner, you vet the borrowers and set the terms of these loans. Typically, the interest rate can be competitive, as some people either can’t meet the requirements of typical lending institutions or don’t want to go through the hassle to begin with. If your IRA loans money to an individual for a piece of real estate, which is often the case, that property can be held as collateral in case the borrower defaults on the note. And, again, all income flows into your self-directed retirement plan on a tax-sheltered basis.
4. Tax Liens and Deeds
Tax liens and deeds as IRA assets are perfect investments if you have limited funds. 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 who can meet the terms of the sale. Investors purchase liens and deeds and in turn become the collectors of these debts, gaining income most commonly by attaching interest rates to the property owner until the debt is paid in full. In cases of default, the lien and deed holders take possession of the property and make additional income by either renting it out or selling for a more immediate, larger profit.
Any profit from repayment of liens and deeds, rental income, or sales is deposited directly into your IRA and enjoys tax-sheltered status from that income—including capital gains.
Other Real Estate Assets
There is a reason real estate is the most popular investment in self-directed IRAs. There are so many diverse options to choose from in this category that there’s certainly a niche for everyone! And you are certainly not limited to the above examples.
Other ways to invest in real estate with an IRA include:
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- Multifamily syndications
- Real estate investment trusts (REITs)
- Real estate crowdfunding investments
- Farmland and timber land
- Improved and unimproved land
- Foreign real estate options
Have Questions about IRA-Owned Real Estate?
Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation. While many of our clients hold real estate in their IRAs, they also use many other alternative investments to the stock market in their plans. Our staff has decades of experience assisting investors who hold real estate assets in their IRAs. We don’t sell investments or give advice, but we do ensure the administrative details of your accounts follow IRS rules and regulations.
Contact us today to learn more about how you can invest using your retirement funds. You can also attend one of our weekly, free events or listen to our podcast—all are designed to teach individuals about how self-directed accounts can help you build desirable income for retirement.
Additional reading on how to invest in real estate with an IRA:
Case Study: Private Lending from an IRA
5 Steps of Tax Lien Investments in a Self-Directed IRA
2022 Real Estate Market Forecast: What’s Next?
