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How to invest in your first property with an IRA account

How to invest in your first property with an IRA account

Investing in real estate for your retirement is a good idea. Historically, real estate has appreciated over time and this would fit in nicely with a long-term focus on your retirement investing. Real estate can help to diversify your portfolio into another asset class thereby protecting you from the wild swings in the stock market. Real estate can also provide a steady income stream that powers long-term growth, especially if it is done within the tax advantages of an IRA or Roth IRA. Real estate can be a fantastic vehicle to power your retirement accounts but it is not as simple as buying a few shares of stock.

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At the end of the blog, I will present you an investment option with your IRA account where you will only dedicated to enjoying the benefits and without worries.

Rules of how to purchase real estate within your IRA account:

1. Self-Directed IRA: To purchase real estate within your IRA it must first be a “Self-Directed IRA”. This means that the custodian specializes in alternative investments.

To buy and own property via your IRA you will still need a custodian, an entity specializing in self-directed accounts that will manage the transaction, associated paperwork, and financial reporting. Everything goes through the custodian to keep you from violating the strict rules regarding these types of real estate transactions.

It is important to note that it will be your IRA that owns the property and not you the individual. This can be a standard IRA where your earnings are tax deferred until you withdraw, or best of all within a Roth IRA where your earnings are tax-free even when you withdraw. As the earnings on real estate can be quite substantial over time you should seriously consider the self-directed Roth IRA.

2. Disqualified Persons: The property that is purchased must not be purchased from your family (spouse, parents, grand-parents, great grand-parents, children, grand-children or great grand-children), nor from the service providers of your IRA as this is deemed a self-dealing transaction by the IRS. (Click here for more information on prohibited transactions).

The property must also be strictly an investment. It cannot be used by any of the disqualified persons mentioned above. For example, you can’t buy a 2nd home with your IRA and then let your kids live there.

How to invest in your first property with an IRA account

3. The Purchase: To maintain the tax advantages of your IRA account you must make the purchase with cash. While it is possible to take out a mortgage within your IRA any revenue you earn will be considered unrelated business taxable income (UBTI). Using leverage to make the purchase defeats the purpose of the tax advantages of using your Self-Directed IRA.

4. Ownership: Your IRA is the owner of the property, not you. You cannot take any deductions that you might normally make with ownership – mortgage interest or property tax payment deductions for example.

Any maintenance that the property requires needs to be paid for by the IRA not you. Remember that there are contribution limits to IRA ($6,000 in 2020 or $7,000 if you are over 50) and this may limit how many repairs or upgrades you can consider doing on the property.

5. Selling: Once you decide the sell the property, you would do so like any other piece of real estate. But in the sales process you will be generating income.

Investing with Your IRA; The Good and the Bad

The Good:

  • Real estate helps diversify your investments away from cyclical and volatile nature of the stock market.

  • Real estate appreciates over time which may be ideal over the longer time horizon when investing for your retirement.

  • Rental income can provide a stead stream of income to your IRA account and this income will grow tax free with-in the IRA.

  • You can buy and sell multiple properties with no tax consequences.

The Bad:

  • Any expenses, repairs or maintenance must be paid from the IRA account.

  • You must employ others must manage the property.

  • Your relatives cannot live or run a business out of the property.


While there are certainly some hoops that the IRS makes you jump through, the purchase of real estate can really boost your retirement plans. The tax deferred status of an IRA (or best of all tax-free status of a Roth IRA) means that your retirement account will grow at a faster rate. While you cannot withdraw funds from your IRA without penalty until you reach 59.5 years the plan is to not need those funds until the day you retire.

Additionally, you will be diversifying your investments away from the volatility of the traditional stock market and protecting your retirement accounts from the ravages of an errant tweet.

Remember, there are other ways to invest with your IRA account where you will only be enjoying the benefits.

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