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Invest in Real Estate With Your Self-Directed IRA

Published on: August 8, 2022

At 1031 Exchange Place, our services are focused on utilizing a 1031 exchange as a means to defer tax and accomplish your investment objectives. In today’s post, though, we’ll go over another investment tool: an individual retirement account, or IRA. Not only do IRAs provide great tax benefits, but they’re also a great vehicle for those looking toward their future to invest in real estate. If you’re fond of real estate, using a self-directed IRA – which isn’t mentioned as often as it should be – might be particularly beneficial to you. Here are some basics.

Self-Directing IRA Basics

A standard IRA is a long-term savings account where you add cash or cash equivalents over a long period of time. Your account will have an administrator, who is in charge of using your contributions – which are tax-deferred – to buy various securities, such as stocks and bonds. The goal is to moderately grow this account based on smart, safe investments; when you reach retirement age, you can access both the original principal and your investment returns.

As the name would suggest, with self-directed IRAs, you decide where these investments are made – not an administrator. Instead, you have a “custodian” appointed by the IRS – you can direct this entity to make purchases for you through what becomes a separate account. Essentially, any property purchased under this agreement belongs to this IRS entity and your IRA, not you directly.


There are several distinct positives to a self-directing IRA:

  • Control: First is the obvious, self-directing IRAs are under your control when it comes to investments. You have to get approval from your custodian, but that’s it.
  • IRA borrowing: Self-directing IRAs can be used as leverage to help finance real estate purchases, and this is because you’re represented by the IRA in this case. You aren’t the one requesting this financing – your IRA is, meaning the property itself is what’s being examined for loan qualifications. There could be additional income tax considerations here, however.
  • Tax-deferred: Your IRA is tax-deferred, and all income from any real estate or sale proceeds comes into the IRA. This remains the case if an IRA-owned property is sold, as well. Investments still carry the same kind of risk they normally would, but the income you receive from them will not be taxed.

Things to Know

There are also a few things to watch out for here:

  • Disqualifications: You’re allowed to contribute cash to a self-directed IRA, but very little else. You can’t contribute toward improvements on IRA-owned properties, for instance – you can’t even put personal time into improvements on that property, or hire a family member to do so. The IRA itself will have to fund all these areas through third parties. In addition, parents, grandparents, children, and spouses cannot participate in the IRA investment at all (cousins, siblings, aunts, and uncles can, however).
  • Work and time: Self-directing IRAs require you to put in far more time than other IRA formats – and if you can’t, the performance IRA itself can suffer.
  • No real-estate tax advantages: Because any real estate you purchase using the IRA belongs to the IRA itself, you don’t get any tax deductions, capital losses, or depreciation advantages personally.

If you don’t have a self-directed IRA but are interested in investing in real estate in your IRA, we can help you get one set up. If you already have one, talk to one of our advisors about viable real estate options.


Authored By:

1031 Investment Advisor

Nate oversees the daily operations, business development, and strategy for 1031 Exchange Place. He became interested in real estate from a young age due to his father's influence. After earning his real estate license at 18, Nate worked in the 1031 industry, focusing on business development through a unique white-labeling model. Following a religious mission in Taiwan, he continued in the industry until the 2008/2009 real estate crash. During the downturn, Nate pursued entrepreneurship and marketing, working with startups and outdoor companies. As the 1031 market recovered, he returned to work with his father, aiming to provide a more personalized experience for clients. Nate is passionate about outdoor activities and spends his free time with his wife and four sons, enjoying fly fishing, skiing, backpacking, rock climbing, and riding dirt bikes.