Using a Self-Directed IRA to Invest in Real Estate

Buying a house in an IRA?I’ve been itching to invest in real estate for a while now, but have been holding off because I intend to pay cash. It occurred to me recently that I might be able to do so faster through a self-directed IRA.

What’s a self-directed IRA, you may ask? As the phrase implies, it’s an IRA that you’re the decision-maker on. (As opposed to having a broker or bank manage your IRA investments for you.)

So could it be a good idea to invest in real estate within self-directed IRA? Maybe.

Is it allowed?

First, there’s the question of whether you’re even allowed to invest directly in real estate within an IRA. (As opposed to investing in a REIT.) The short answer is, yes. According to the IRS web site, “IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

So, it’s allowed IF you can find a custodian for your account who is willing to offer real estate as an option. I did a little bit of poking around on the IRS web site and found this list of approved non-bank trustees, so that’s probably where I’ll start my search.

Are there restrictions?

It turns out that while you are allowed to use an IRA to buy real estate, you’ve got to be really careful in doing so. You’ve got to avoid prohibited transactions, which are described here.

One of the things I’d really love to do is buy a house and fix it up. As in, literally do the work on the house myself. Unfortunately, doing the work myself would be a prohibited transaction, since I would be a beneficiary of the IRA, and I’m not allowed to provide goods or services to it. So that’s a no go.

I also wouldn’t be able to, say, buy a vacation home and use it for part of the year, or buy a condo and rent it to my son. There are other restrictions, too, and it can be costly if you screw up, so be sure to get competent advice throughout the process if you’re thinking of investing in real estate within an IRA.

What I can do

Based on the reading I’ve done so far, I’ve got some more investigating to do. I still may invest in some real estate using an IRA — just not the way I’d hoped to. Instead, I might consider buying a property that just needs the type of cosmetic work I wouldn’t do myself anyway: things like replacing carpet & paint. Many people can’t look past easily fixable cosmetic issues, so with luck I could then sell it for a profit within my IRA.

Another alternative might be to buy an inexpensive condo nearby and rent it out, or even to buy ground that’s likely to appreciate in value. I probably won’t go either of those routes though. At any rate, it’s food for thought. I’ve also got to consider the risk of being overweight in real estate, so we’ll see…


  • contact American Pension Services out of Utah – they do this for all of the investors in our community

  • This is an interesting idea. I guess I’m not surprised by all the restrictions. It does seem like it could be another way to make a long term investment, within your IRA investment. Keep investigating. Mistakes sound like they can be very costly.