Learn how your IRA can invest in residential real estate
Single-family homes and multi-family units (such as apartments or condo complexes) are the most common type of real estate found in self-directed IRAs. Investors can fix and flip homes or hold on to rental properties for a flow of passive income with a Real Estate IRA —it's up to you! But be sure to pay close attention to the rules regarding disqualified persons and prohibited transactions to avoid Real Estate IRA penalties.
3 very important factors to consider when purchasing
1. Due Diligence for your property
When buying residential real estate, research the seller or auctioneer and consider all of the variables involved in managing your new asset. Examples of due diligence include walking the property, researching its claims history, confirming the quality of tenants past and present, and reading all documents associated with the property, such as leases, HOA (Homeowner's Association) documents, and insurance policies.
2. Conducting property management
As the IRA holder, you cannot be the property manager, nor can you perform the maintenance on the property. Review our section on Property Management for information on how to navigate the day-to-day operations of owning residential real estate.
3. How expenses work on your property
Because the IRA is the owner of the real estate, not the IRA holder, all purchase and maintenance costs are paid by the IRA, and all income (e.g., rent) goes back to the IRA. You must use IRA funds to address any maintenance costs or other expenses related to the property. For more information, see Income and Expenses.
Disclaimer: Before you invest in this business sector using your IRA, it is best to consult with your investment, legal and tax advisor. Entrust does not endorse or recommend any of these investments. Proper due diligence by you the IRA holder is recommended before entering into any transaction.
- Field Guide to Due Diligence for Home Buyers (National Association of Realtors)
- 5 Reasons to Use a Self-Directed IRA to Invest in Real Estate
- Utilizing Your IRA for Multifamily Real Estate Investments (On-Demand Webinar)
- Using Self-Directed IRAs to Invest in Apartment Buildings