Why Purchase Real Estate with a Self-Directed IRA?

 |  Investing in Real Estate
real estate purchase

By J.P. Dahdah, Founder & CEO of Vantage

A promising retirement planning trend is the use of a Self-Directed IRA to invest in real estate.

Investors are recognizing the value of putting their retirement savings in tangible assets, like residential or commercial properties. If you’re considering expanding your investment portfolio, here are some elements in using a Self-Directed IRA for a sound real estate strategy.


  1. Real estate assets will always have value, despite the economic situation. The real estate market is notorious for cycles of up-and-down pricing.

    But a property will always remain a property. And while it may lose value, it will never fall to zero. For retirement, you want these types of assets, which can retain a significant chunk of your initial investment even during economic downturns. 

  2. Property assets can be a steady source of income.

    Rental property is big business for many investors. And balancing the rental income with the maintenance expenses can significantly boost your portfolio. Rent is a steady and dependable source of income. Money will be deposited into your retirement account every month.

  3. Diversifying your portfolio.

    Many investors claim they are diversifying their IRA portfolios. But when you press for more concrete answers, you quickly realize that all the assets they are betting on are in the stock market. Real estate is a valid way to diversify. And it’s a great hedge to maintain your retirement plan value without compromising your ability to make riskier investments.

  4. Tax benefits.

    Investment income of any kind will attract taxes. But when you use a Self-Directed IRA to purchase property, you can avoid paying taxes and any capital gains until you withdraw IRA distributions. You can avoid taxes on the income altogether in the case of a Self-Directed Roth IRA, in which case, your contributions are taxable on the front end.


  1. Purchase with cash.

    With sufficient funds, you can purchase a property outright. All ongoing expenses are paid from your Self Directed IRA, and all income/profits are returned to your IRA.

  2. Partner with family, friends, or business associates.

    If you don’t have enough funds for a cash purchase, your Self-Directed IRA can purchase an undivided interest in a property. For example, your Self-Directed IRA could partner with a friend or business associate to buy a property for $300,000. The friend could provide 70% of the purchase price ($210,000), and your Self-Directed IRA could purchase the remaining 30% ($90,000). If the property collected monthly rent of $2,000, the friend would receive $1,400 (70%), and your Self-Directed IRA would receive $600 without taxation (30%).

  3. Provide a private loan to a borrower who uses real estate as collateral.

    Self-Directed IRA investors can offer private loans to borrowers in search of capital. Historically, private lenders lend at interest rates higher than traditional funding sources and have the freedom to structure repayment terms to their advantage. In essence, your Self-Directed IRA can help you become the “bank” and gain greater control and assurance of receiving the intended investment returns to achieve your retirement goals.


You can own real estate of any kind within your Real Estate IRA. Section 408 of the Internal Revenue Code’s rules and regulations provide the validation you and your trusted advisors may seek when you first learn about Self-Directed IRAs.

Below are different avenues to pursue for purchasing real estate:

Direct ownership in a property, including:
  • Residential single-family
  • Multi-family property
  • Commercial and industrial property
  • Improved or unimproved land
  • International properties of all types
Fix and Flip: This strategy relies on an investor’s ability to purchase a distressed property (either physically or financially distressed), and then increase the property’s value by fixing it up quickly with:
  • Foreclosures
  • Short sales
  • Distressed and bank-owned property
Public ownership via a REIT (real estate investment trusts): A REIT can provide broad diversification geographically and across multiple sectors.  Public REITs can be purchased easily on the open market and are more liquid than their private or non-traded counterparts.

As you can see, there are many compelling reasons to purchase real estate with your Self-Directed IRA. If you have questions about the process or the information provided here, please contact us. We’d love to speak with you!