Self Directed Ira Real Estate

Last Updated on January 15, 2024 by Ben

There are many types of IRAs you can invest in, and one of the most popular is a real estate IRA. Unlike paper assets, this investment tends to be more stable and provides high returns in the long run.

Many investors who know how the market works may find this beneficial in diversifying their portfolios. However, it comes with its drawbacks.

Please keep reading to learn more about self-directed IRA real estate, what it can offer, and how you can start your journey.

Top Gold IRA Companies

Augusta Precious Metals

Star Rating

Augusta Precious Metals is a leading IRA company that mainly provides precious metals retirement investment accounts. They have been considered one of the country’s largest dealers of silver and gold since its business in 2012.

Precious metals, especially gold, have been a currency for centuries. Until now, it only maintains its value and has even grown more in the past years.

It’s also hard to ignore the tax advantages you’d experience when you partake in retirement investments. This makes it an excellent tool for portfolio diversification.

It is almost impossible to go bankrupt with precious metals, which is why many people turn to this when preparing for retirement.

However, Augusta Precious Metals have a higher minimum investment cost that others may find too steep. The price may shy you away from the company if you are new in the industry.

Despite that, they remain one of the most significant providers for traditional or Roth IRA investments across the United States, with hundreds of investors.


  • An extensive list of coin bullion
  • Free educational materials
  • Free shipping deals
  • Wide variety of precious metals


  • Steep minimum investment cost
  • Premium coins cost more than the bullion

American Hartford Gold

Star Rating

American Hartford Gold is an excellent company for providing gold and silver IRAs. They have had great reviews across platforms in the past years and were named the #1 gold company by Inc 5000’s in 2021.

This is a good company if you are interested in starting your precious metals journey. They have competitive pricing that you can always access by reaching out directly to them.

The Business Consumer Alliance has given American Hartford Gold a rating of “AA,” with 4.9 stars out of 5. That is a considerably high rating for a precious metals IRA company. It is also much easier to open an account with them, which you can finish in minutes.

They will store all your precious metals purchased from them in a depository on Brinks Global Services or Delaware Depository.


  • Complete disclosure of the sales
  • Provides specialists with educational resources
  • Competitive Pricing
  • Offers special deals


  • The price list is not listed on the site
  • International shipment is not available


Star Rating

Goldco has made a name for itself as an excellent company in supplementing retirement savings with precious metals throughout the USA.

The company has received several top-tier reviews from verified clients across various platforms. They have been in the industry for more than 16 years already. If you are looking for a reliable company to manage your assets, you would want one with great experience and a trusted reputation.

Economic recessions are normal every few years, and you can only secure your money by investing it in stable assets. Precious metals are a fantastic hedge against inflation and a falling currency, providing you the same value or even more during retirement distributions.

However, keep in mind that the minimum investment cost of Goldco for precious metals IRA starts at $50,000. This company might not be your best option if you are a beginner.


  • A trusted BBB company
  • High buyback offer prices
  • First-year fees are waived off
  • Streamlined account setup


  • High minimum investment cost for precious metals IRA
  • Not ideal storage fees

Birch Gold Group

Star Rating

Birch Gold Group is an established name in the precious metals dealership industry. They launched way back in 2003, making them among the oldest operating companies in the United States.

Upon signing up for an account with them, they will provide you with everything you need. They have a team of experts and professionals who can help you with the process and answer all your questions about their products and services.

Over the years, Birch Gold Group had thousands of clients nationwide. Even though their services are not always perfect, they still have a reputable presence in the industry of precious metals investments.

They also have celebrity endorsers like Ben Shapiro and Philip Patrick, who, over the years, have discussed topics related to federal spending, inflation, currency devaluation, and more.


  • Transparent pricing
  • BBB accreditation
  • A wide range of precious metals is available
  • A+ rating from the Better Business Bureau


  • Limited customer service hours
  • Higher fees

Why Should You Purchase Real Estate Using A Self-Directed IRA?

The real estate IRA allows people to hold real estate properties on their self-directed individual retirement account (SDIRA). This is only specific to this account and not available for other IRAs such as Roth, Traditional, Simple, or SEP IRAs. You can directly choose, purchase, and sell real estate assets in your account.

Investment options include commercial and rental properties, single and multi-family homes, international property, mortgage notes, and more. However, you cannot cash out your IRA and pay taxes for it because real estate investments are not permitted investment in IRAs.

How Do Real Estate IRAs Work?

You will need a self-directed IRA to invest in alternative assets, and the IRS states that you should invest through a passive third party. Many people opt for a self-directed IRA custodian to help with the process due to the protections that come with additional oversight. 

The process for this account is not that different from a standard real estate purchase. You can look through properties that you find interesting with your real estate IRA. Then, you will tell your custodian the property you want to purchase, and they will make the transaction in your name. 

The properties will be an investment for your IRA, so that they will make it in the name of your account. The income accumulated by the asset goes back to the IRA, and the IRA will pay all the expenses the property needs. 

As long as your account is a self-directed IRA, you will not be required to pay taxes via the income gained from the listed rental property. However, if you used a non-recourse loan to purchase the property, the debt-financed portion of the profit is subject to tax.

What Are The Benefits Of Investing In SDIRA Real Estate?

You cannot expect stress-free investing in real estate SDIRA, but why do people still go through with it? Here are the main reasons why.

High Long-Term Returns

Self-directed IRAs have longer commitments, which is why many investors believe they will be suited for their real estate investments.

Properties appreciate, depending on many factors such as access to basic needs, placement of the lot, weather conditions in the area, and more. After a few years, a real estate investor can sell their properties at a much higher price than they initially spent on the purchase.

Real estate property investments earn high returns. This makes it an excellent investment option for people with enough experience in the industry. They can make wise investment decisions and end with good results.

Hedging Against Inflation

Many assets are easily affected by inflation, but real estate is not. People are constantly looking for ways to secure their wealth by investing in properties as a hedge against economic crises.
The price of homes keeps up with the cost of rent, goods, and services, thus providing wealth security for investors.


When diversifying investment portfolios from traditional assets like bonds and stocks, most investors purchase real estate as alternative investments. They sometimes do this to vamp up their self-directed retirement account.

According to the data analyzed by ETF Trends between the years of 2021 and 2020, there is a near-zero correlation between real estate investing and bitcoin (0.01), gold (0.09), and bonds (0.04). However, the data shows a stronger correlation with stocks at 0.73.

Real estate is an excellent diversification tool, especially with gold, bitcoin, and bonds.

Passive Income

The rental income from the properties associated with an SDIRA grows tax-free. This allows you to earn a passive income as an investor. However, you cannot withdraw the gain until you reach the age of 59 years old and a half.

How Can You Get A Self-Directed IRA To Finance Real Estate?

First, you should know that not all forms offer self-directed IRAs. Sometimes, it can be counterintuitive for a firm to encourage investors to divert their funds from the stock market. What you can do instead is to find a financial institution or company that offers these services. Such institutions are known as IRA custodians. 

If you want to find a reliable IRA custodian, the best thing you can do is to network with other real estate investors. Most real estate investment success was made possible by relationships and connections with others. You can easily find them at local and online meet-ups, and they will happily provide recommendations. 

Make sure to verify the fee of certain custodians so you can compare. Some charge a percentage of the real estate value, while others do a flat fee.

What Does A Custodian Do?

Custodians are responsible for record-keeping any transaction related to your real estate IRA and reporting them to the IRS (Internal Revenue Service.) Remember that they are not responsible for finding good deals for real estate, market trends, and screening tenants. All of those duties should be made by you as the IRA account owner.

Their main job is to ensure all documents and transactions are in line with the rules provided by the IRS to avoid any taxable events. They also sign off all tenants’ transactions, including mortgage and lease agreements. You will need to report to them the property’s value every year.

How To Set Up A SDIRA For Investing In Real Estate?

The flexibility you can benefit from self-directed IRA real estate is famous among many investors. You can use your existing retirement savings to purchase rental properties.

Imagine the income you will make if you have several properties that will help your retirement savings grow. Additionally, investors feel they have complete control over their retirement funds under real estate investments.

If you are interested in starting with this investment, these are the steps you will need to follow:

Begin the Paperwork

The first step that you should do in financing an investment property with SDIRA is the paperwork. Sometimes, this starts with locating potential properties, creating a purchase agreement, and agreeing to the money deposit.

Stating that the funds will come from the IRA’s cash balance rather than from a personal checking account is essential.

Then, you will need to sign all the purchase contract documents, including the countersigning of your IRA custodian. The IRS requires a custodian to hold the assets on behalf of the account owner. They will also perform administrative duties, including amendments to the purchase contract and addenda.

Send the Deposit

After doing all of those, you will need to consider the deposit. The owner of the IRA account is required to send the money deposit funds to the escrow company from their IRA custodian. It is crucial not to send funds from your account, as it will become a prohibited transaction.

Review the Documents

You and the IRA custodian will have to review the documents to ensure that the investment is suited for administration. It should not include any prohibited transaction.
The review process covers the proposed grant deed, final settlement statement, preliminary title report for the property, escrow instructions from the escrow company, and completed custodian forms.


Once all documents have been signed and the self-directed IRA funds are in Escrow, you can begin moving forward with the investment. You can do anything with the property at this stage, including selling, leasing, or renting.

However, one should mind the rules given by the IRS for self-directed IRAs. Those seeking to rent or lease out properties must enlist a third-party property manager to help gather the rental payments and send them to the IRA. All income that will be coming from the property will be paid to the IRA account.

Due Diligence

Like any other investment, you must do the legwork in the beginning stages of your real estate investment. It would be best if you kept up with your due diligence and always had a to-do list to avoid anything important. This will ensure that you use your investment and efforts effectively for the account.

Whether you are knowledgeable in self-directed IRAs to finance real estate or not, it is crucial to consult a tax professional before you invest in this account.

How To Purchase Real Estate Via A Self-Directed IRA?

Real estate SDIRAs allow the investment of properties in your retirement account, which has been increasingly popular in the last few years. To start with, here’s what you can do.

Find A Custodian

You would find it extremely valuable to find a custodian first. Unlike in other IRAs, this is a requirement for this specific account as they will be the ones to help you process the grant, documents, and purchase of the real estate.

However, this can be a complicated process. Although it is possible, finding custodians that offer services other than traditional IRAs is still challenging.

You will find the best luck reaching out to IRA Services Trust Company, Provident, and IRA Financial Group custodians. Remember that some custodians have specific fee structures, so research before settling with one.

Custodians are not responsible for performing due diligence on your decided assets purchased through an SDIRA, as it is still your duty. Their only task is to manage the transactions, report the finances, and do the paperwork.

Operate a Self-Directed IRA

Once you have set up your SDIRA with a custodian, there are two ways in which you can proceed.
The first is opening an LLC corporation under the account where you will make all sales and purchases. This is also what’s known as a checkbook IRA, allowing you complete control over your real estate IRA. The LLC will have a checking account, tax ID number, and name that you can use for transactions.

The second one is to purchase and sell properties through a broker. They will make the deals with your custodian in purchasing real estate with the money in your IRA and charge fees for the service.

Buy Real Estate

Your SDIRA is considered a separate legal entity from yours. When purchasing properties, you will do so in the name of your retirement account. Additionally, the income from the property will also go to the IRA because it will be the one to spend everything from the maintenance and repairs.

Note that your real estate investment does not undermine the contribution limits mandated by IRS. If you are under 50, you are not allowed to contribute more than $6,000, and $7,000 if you are above 50. Going beyond the limit will have a tax penalty of 6%.

It is almost impossible to get a mortgage by purchasing properties through an SDIRA, so you will have to make the purchases in cash. There will be no tax deduction for mortgage interest payments.
If you got approved for a mortgage with your real estate IRA, your income from the properties will be considered unrelated business taxable income and be subjected to a corporate tax rate.

Rent or Sell Real Estate

Your income from selling and renting your real estate will return to your real estate IRA. If your account is Roth, the payment will be taxed during contribution, but it will grow tax-free until you can withdraw it.

If it is a traditional IRA, the income will not be taxed during contribution and grow tax-free but will be taxed upon withdrawal.

Self-Directed Real Estate IRA Rules

The primary purpose of IRAs is to help you have a better retirement financial situation and not before that. The investments in an SDIRA are no different. There is a legal separation between you, the investor, and your account. Thus, it is also subjected to unique sets of rules the IRS guides.

Disqualified individuals

According to the rules provided by the IRS, these are the unqualified persons from accessing the SDIRA:

  • Investor
  • Investor’s spouse
  • Investor’s children, grandchildren, great-grandchildren, and their spouses
  • Investor’s parents, grandparents, and great-grandparents
  • Investor’s service providers
  • Anyone that owns more than 50% of the real estate property

None of these people can use or immediately financially benefit from the property purchased through SDIRA.

Pros & Cons Of Self-Directed IRA For Real Estate

Now that you know how to use your self-directed IRA to pursue real estate investment, you should decide whether the idea suits you. This account is recommended for people with a better understanding of IRA work since there are restrictions you will need to consider.

Here are some of the real estate IRA benefits and drawbacks:


  • Authority

The most significant advantage of a self-directed IRA for real estate is control. Other assets such as mutual funds, ETFs, stocks, and bonds are generally controlled by others, so their return can be subtle.

In real estate, you can earn more with a good strategy. This can upgrade your financial conditions during retirement.

  • Tax deferral

Another benefit you will enjoy from a real estate IRA is its ability to grow your savings in a tax-free environment. You can invest your profit into other tax-free investments. However, remember that the tax deferral only applies to the money you have attributed, not outside financing. 

  • Asset protection

Like any other IRA, a self-directed IRA has protection from federal and state bankruptcy laws. It is considered a trust and a separate entity from the owner so that it will have asset protection.

  • Higher returns

Self-directed IRA for real estate provides higher returns at a much faster rate than other retirement accounts. It helps investors have a stable cushion for their retirement.

The stock market fluctuates every year. However, real estate is a tangible asset that tends to be more stable. Also, the cash flow from rental properties can eventually yield higher returns in the market.


  • Approval

You will need a third-party custodian if you want to take advantage of a self-directed IRA for real estate. They will be your account holder and have to get approval from the IRS to serve as an intermediary between the investment issuer and the investor. The custodian will also have permission to release the funds.

The custodian’s job is to track and report your property’s contribution and distribution to the IRS from the account. They will be the guardian of the account, but they need to have the duty to perform due diligence on your investments.

  • Restrictions

There are many restrictions in a self-directed IRA for real estate. This includes not being able to involve those who usually have a 50% interest in the investment, such as a spouse, company, or immediate family member. They are disqualified from receiving benefits from the transactions in the assets.

Additionally, you cannot live in one of the properties you own through the SDIRA because you are considered a disqualified person. Your family members will also be unable to control the transactions, such as selling and renting out the properties. If they do so, the investment can become disqualified. 

  • Lack of liquidity

Unlike bonds, you cannot liquidate stocks, precious metals, and real estate into cash. It is also not possible to sell it in parts. That is why you need to consider several factors before going through with it to ensure that you will have a good return. 

If you need funds immediately, there are better options than real estate for you to pursue. It may take a few weeks, months, or even years before a seller can close a deal for a property. 

Also, withdrawing cash from your IRA before reaching 59 and a half will be subjected to a mandatory penalty of 10% of the amount you take out.

  • Contribution limit

According to the IRS, the IRA funds every real estate transaction. However, you might encounter problems if the concerned IRA needs more money to cover the expenses. 

The Internal Revenue Code for 2021 states that an individual’s maximum contribution is only $6,000. Some actions may exceed this limit, such as replacing a furnace or roof of the property.

  • Lack ownership

Although you, as an investor, will be the self-directed IRA holder, the owner of the real estate investment is the IRA. You cannot claim tax deductions on the acquisition, such as depreciation and property tax. 

Final Thoughts – Self Directed IRA Real Estate

Real estate investment is excellent, but the process can be very daunting. If you are starting in the field, you might find it intimidating as the journey requires many considerations and rules to follow to avoid penalties.

However, it can also provide high returns if done correctly. If you are considering this type of investment, it would be best to do your research first and talk to people who are more knowledgeable and experienced than you in the area. You should also reach out to reputable custodians to help you with all the documents and specific fees that would benefit you more.

Investment is a risk, so you cannot always expect a smooth experience every time. As long as you are careful and perform your due diligence as needed, you will be able to enjoy the results of your investments eventually.

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