How To Invest In Real Estate With an IRA | Everything You Need To Know

Real estate is one of the most popular assets among self-directed IRA (SDIRA) investors, and for good reason. With an SDIRA, you can invest in single or multi-family homes, REITs, raw land, and virtually any other real estate type, giving you the flexibility to build a portfolio around assets you already know and understand.

Why add real estate to your SDIRA?

Real estate can strengthen your retirement portfolio in several ways. Because property values don't move in lockstep with the stock market, real estate adds resilience and diversification. Historically, it has also delivered strong returns, often outperforming other asset classes depending on the investment.

Beyond growth, real estate is a powerful tool for building generational wealth. Held within a Roth IRA, investments can even be passed on to a beneficiary tax-free.

SDIRAs offer meaningful tax benefits regardless of which account type you choose. A traditional SDIRA, for example, lets you defer taxes on both contributions and earnings until you take distributions, allowing your investment to grow uninterrupted in the meantime.

Types of Real Estate

Residential

Purchase single or multi-family homes, apartment buildings, or even condos using your IRA funds. You can fix and flip, rent the property to tenants, or simply maintain it and allow it to appreciate.

Commercial

Invest in storage spaces, office buildings, factories, warehouses, storefronts, or any other commercial space that compels you.

Improved and Unimproved Land

Purchasing raw, unimproved land is perfect for those looking for a passive means of real estate investment involving minimal upkeep. Improved land is similar to unimproved land but with the added benefit of utilities such as water, sewer, and/or electricity. Land with access to utilities has greater potential for development.

Mortgage Notes

Mortgage notes are a secured loan between your IRA and a borrower purchasing property. They can provide a low-maintenance alternative to investing in actual property. For more information regarding mortgage notes, please visit our Private Lending page.

Offshore Real Estate

You can use your IRA funds to purchase a retirement home abroad. Even if you never plan to live in it, offshore real estate can be a great way to diversify your portfolio and can yield high returns (depending on the investment).

Strategies for Purchasing Real Estate

There are a number of ways you can fund your investment.

Direct Purchase

The easiest and most straightforward way to purchase real estate. Your SDIRA pays for the property in cash without relying on other funding sources and holds the property title.
Partnering

Team up with other IRAs, your personal funds, or the personal funds of other investors to purchase your investment property. Ownership, expenses, and profits are divided in proportion to each investor’s contribution. Learn more ›
Leveraging (Non-recourse Loans)

You can leverage your investment by using a non-recourse loan to buy an investment property. Non-recourse loans ensure that if your IRA defaults the lender’s only recourse is to foreclose upon the real estate used as collateral. Learn more ›
LLC

Though this structure generally takes more effort to establish initially, it has a few key benefits. Establishing checkbook control makes you less reliant on your SDIRA custodian. The funds you deposit into your LLC’s checking account are readily available. Your transactions become as simple as writing a check. It also allows you to purchase and sell the LLC’s investments without involving your custodian, saving you money and time. Learn more ›

5 Steps to investing
in Real Estate with an SDIRA

Things to Know Before You Invest

Prohibited Transactions

Here’s a quick rundown of prohibited transactions you’ll want to avoid:

You can’t stay at or live in a property your SDIRA owns
Disqualified persons can’t stay at or live in the property your SDIRA owns
You cannot transfer a property you already own to your SDIRA
Property renovations and maintenance can’t be done by SDIRA holders or disqualified persons
You cannot receive compensation if you choose to act as the agent for the real estate transaction

Titling/Vesting

The title of the property is vested in the name of the IRA. Entrust reviews the investment documents to ensure that the contract has the correct title prior to processing and funding the transaction.

Example of title:

For IRAs: The Entrust Group, Inc. FBO [Client Legal Name] Account# [Client Account Number]
For Qualified Plans: [Client Plan Name] Account# [Client Account Number]

How to Invest in Real Estate

START

STEP 1

Open a Self-Directed IRA

Open an account online in under 10 minutes here.

STEP 2

Fund your account

Via a transfer, a rollover, or a cash contribution.

STEP 3

Find your investment property

Identify property and make an offer. Make sure the contract is titled in the name of your IRA as the buyer. For example, “The Entrust Group FBO Client Name Account X #555555.” Entrust signs the purchase contract and you sign as “read and approved.”

STEP 4

Make an Earnest Money Deposit (EMD)

Complete a Real Estate Investment Request on the Entrust Client Portal OR fill out a Real Estate Buy Direction Letter and submit it with the purchase contract for Entrust to sign. Allow up to two business days for review.

*Note: Before The Entrust Group can fund the EMD for investment purchases, we must have a fully executed Purchase Contract agreement signed by both parties: seller and buyer (the IRA), see step 3.

STEP 5

Prepare for escrow

Upon receipt of the fully executed Purchase Contract agreement, Entrust will fund the earnest money deposit the following business day, if applicable.

Once Escrow has opened and when the title company is ready to close escrow, you will need these documents:

Warranty Deed or Grant Deed
Preliminary Title Report
Estimated Closing Statement
Title’s Company Wiring Instructions .
Escrow Closing Instructions (if applicable)
Loan Documents (if applicable)
Seller’s Entity Formation Document (if applicable)

STEP 6

Submit closing paperwork

Once you submit the final paperwork listed above, Entrust will review the paperwork and fund the remaining balance. Allow up to three to five business days for normal review. When the paperwork is completed in good order, Entrust will fund the next business day.

FINISH

Your SDIRA now owns real estate!

Managing Your Real Estate Investments

Income and Expenses

Some investors choose to hire a property manager in order to consolidate expenses. However, IRA holders can receive rental income and forward it to The Entrust Group for recordkeeping. Any income generated by the property is paid to your SDIRA and any expenses paid out of your SDIRA. Checks from tenants must be made payable to your IRA, not to you personally.

Property Management

While you are not required to hire a property manager, it is often recommended. Property managers can be useful in helping investors navigate day-to-day operations and avoiding prohibited transactions.

Legal Documents

All legal documents related to an IRA-owned asset, such as property manager contracts, the lease or rental contract with tenants, and property insurance, must be held in the name of the IRA. Read about property management within an IRA for more information.

UBIT & UDFI

If your IRA bought the property outright, you do not owe unrelated business income tax (UBIT). Rent and the gains from property sold by an IRA outright are exempt from UBIT. However, if you used debt to buy the property, you will have unrelated debt-financed income (UDFI) and will owe UBIT. Similarly, if you formed an LLC or LP within your IRA to buy and run the properties, you may owe UBIT on income that exceeds $1,000.

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