What is a Real Estate IRA?

So, What Is a Real Estate IRA Anyway?

“What is a real estate IRA?” is a common question. Self-directed retirement plans used to acquire real estate investments are commonly called real estate IRAs. Real estate investing in IRAs is popular for many individuals, especially those who are knowledgeable in the industry.

If you decide to invest in real estate with your IRA, you have some investment decisions to make. There are numerous assets in this class you can use to build tax-free or tax-deferred wealth for retirement.

Well-known assets include rentals, rehab-and-flip projects, single and multifamily homes, commercial property, as well as improved and unimproved land. Private mortgages, tax liens and deeds, and offshore property investments are also permissible in self-directed plans. Regardless of which option you choose, each has its own wealth-building potential and adds diversity in retirement portfolios.

How real estate works in an IRA

  • The property is owned by the IRA and titled in the name of the IRA.
  • You (or any other disqualified person) are unable to receive current benefits from the investment (i.e., vacationing in a rental property owned by your IRA).
  • Your IRA is unable to purchase property from or sell property to you or another disqualified person.
  • All expenses and income flow directly out of and into the IRA.

Historically, property has been considered a preferred asset that weathers the volatility of the stock market well. And, not only are there various assets to choose from, there are a few different ways you can fund the purchase using your real estate IRA.

Blue single family home with white picket fence

Sidewalk between Apartments to help illustrate what you can invest in with a Real Estate IRA

Ways to fund investment property

  • By partnering your IRA funds with another IRA, individual, or inside an entity like an LLC to invest.
  • Through a cash purchase with 100 percent of proceeds coming from the IRA.
  • Finance it using a non-recourse loan if the IRA does not have enough funds to purchase the property.


Common Questions About Real Estate IRAs

Do I have to cash out my IRA to invest in real estate?
No. You do not have to take cash from your IRA to invest. Your IRA can buy real estate with funds in the account and that property becomes a tangible IRA investment. Your plan owns the property, and it is titled in your IRA’s name. Your plan receives income from the asset and also pays expenses for the asset from funds in the account. This is how property holdings in retirement plans build tax-sheltered income. All investment income, even from tax liens and private lending opportunities, are protected within the account’s tax-advantaged status.

Can I use IRA money to buy rental property?
Yes. You can use IRA money to purchase rental property. Your account earns tax-advantaged income on rental payments, which can produce consistent monthly income depending on how the rental is used. But remember—what is a real estate IRA? It is an individual retirement account that builds income for you to use in retirement. You are not able to personally use income or benefits from the plan until you retire. So, you, your family members, and any other disqualified persons are prohibited from using rental property owned by your IRA.

How do you buy a house with a self-directed IRA?
If you have purchased property before, even your own home, you know what a real estate contract and closing look like. When you invest in real estate using an IRA, the only difference is your IRA is the buyer.

Your Advanta IRA account manager works with you throughout the investment process. To buy a house with your IRA, contact Advanta IRA and direct us to make the purchase. You fill out our Real Estate Purchase Authorization form and we take it from there. We work with you and other professionals to ensure the paperwork is properly titled, accurate, and complete. You must review and sign/initial that the information is correct, but we sign the paperwork on behalf of your IRA. The house is titled in the name of your IRA: Advanta IRA FBO Your IRA #123456.

How do you find real estate investments for an IRA?
Finding investments for your real estate IRA may be easier than you think. You can search property sales platforms like Zillow and Trulia. Talk with real estate investors and professionals with experience in locating investment property. Join investing clubs, MeetUps, and local Real Estate Investors Association (REIA) groups. You can draw on the knowledge of these and others who understand how investment property works.

Additional Resources about real estate IRAs

Free eBook

Invest for Success:
Real Estate in Your IRA