Using an IRA to buy investment property requires a very different setup than buying stocks or mutual funds. Real estate purchases generally must happen through a self-directed IRA rather than a traditional retirement account, and the rules can be complex.
This article explores how self-directed IRAs work, how you can use them to purchase investment property, and the most important restrictions and limitations to keep in mind.
What It Means to Use an IRA to Buy Investment Property
If you have a traditional IRA or Roth IRA through a typical brokerage, your investment options usually include stocks, bonds, mutual funds, and similar assets. When people talk about using your IRA to buy investment real estate, they’re almost always referring to a specific type of account called a self-directed IRA.
A self-directed IRA works like a regular IRA in many ways. It still has contribution limits, distribution rules, and tax advantages. The difference is that it allows you to invest in a wider range of assets, including real estate.
To open one, you must work with a specialized IRA custodian. This is a company that holds and administers the account on your behalf. The custodian handles paperwork and processes transactions to help keep the account in order.
The structure itself can vary. In many cases, the property is purchased directly through the IRA. Some investors also use IRA-owned LLC structures that provide more direct control over transactions and banking activity.
Either way, the investment generally needs to remain inside the IRA framework rather than blending with your personal finances.
Can You Use an IRA to Buy Investment Property?
Real estate held through an IRA generally needs to function as an investment asset rather than a personal-use property. The goal is usually to generate rental income, long-term appreciation, or both inside the retirement account.
As a result, some suitable properties may include:
- Rental homes
- Small multifamily properties
- Commercial real estate
- Raw land held for investment purposes
The restrictions tend to matter more than the property type itself. IRS rules surrounding self-directed IRAs generally prohibit certain forms of personal benefit or related-party use. For example, arrangements involving personal occupancy, vacation use, or renting to certain close family members can create prohibited transaction concerns.
How To Use a Self-Directed IRA To Buy Real Estate Step by Step
1. Open a Self-Directed IRA
The process usually starts with finding a custodian that supports self-directed IRAs and alternative assets like real estate. These companies typically handle:
- Account administration
- Transaction processing
- Tax reporting paperwork
Most do not provide investment advice or evaluate whether a property is a good deal.
2. Fund the Account
Your self-directed IRA needs enough money to cover the purchase price, closing costs, and ongoing expenses. If financing is involved, the structure is more complex and usually requires a specialized non-recourse loan.
Because annual IRA contribution limits are relatively low ($7,500 for 2026, or $8,600 if you’re 50 or older), many people fund their accounts by rolling over or transferring money from an existing IRA or eligible retirement plan.
3. Find an Investment Property
With funds in place, you can start looking for a property. The search itself is your responsibility. You might work with a real estate agent, browse listings, or explore off-market deals. The property must be strictly for investment. You cannot plan to live in it, vacation there, or let certain family members use it.
4. Make the Offer and Complete the Purchase Through Your IRA
The purchase process looks different from a standard real estate transaction because the IRA structure generally becomes the buyer rather than you personally.
Depending on the setup, the custodian or IRA-owned entity may:
- Sign documents
- Send funds
- Hold title to the property
Closing costs, earnest money deposits, and related expenses are also generally expected to flow through the retirement account structure rather than personal accounts.
5. Set Up the Ongoing Structure
After the purchase, income and expenses tied to the property typically continue flowing through the IRA structure. That may include:
- Rental income
- Property taxes
- Insurance premiums
- Repair bills
- Property management costs
Keeping those transactions separate from personal banking activity is one of the more important operational parts of the strategy.
Ongoing Rules for Managing IRA-Owned Real Estate
Once the purchase is complete, the rules don’t ease up. Managing property inside a self-directed IRA requires strict financial separation between you and the investment.
All Money Flows Through the IRA
Rental income collected from tenants must go directly into the IRA account. You cannot deposit rent checks into your personal bank account, even temporarily. The same rule applies to expenses. Property taxes, homeowners insurance, HOA fees, repair bills, and maintenance costs all need to be paid using IRA funds.
This means the IRA needs to have enough cash on hand to cover those costs as they come up. A broken furnace in January or a sudden roof repair can’t wait, and you can’t cover the bill out of pocket. If the IRA doesn’t have the funds available, you could end up in a difficult spot with limited options.
The “Sweat Equity” Rule
One of the most misunderstood restrictions involves hands-on work. As the IRA owner, you generally cannot perform repairs, improvements, or active management on the property yourself. Even if you’re handy and could easily fix a leaking faucet or repaint a room, doing so is considered providing value to the IRA, which can trigger a prohibited transaction.
This applies to physical labor and active property management alike. You’ll typically need to hire third-party professionals for anything the property requires.
What’s Generally Allowed vs. What’s Not
Concrete examples can help make these rules clearer.
Generally allowed:
- Hiring a licensed plumber to fix a pipe and paying the invoice from IRA funds
- Using a property management company to screen tenants, collect rent, and handle maintenance requests
- Paying a landscaping service from the IRA to maintain the yard
- Receiving rental income directly into the IRA account through the property manager
Generally not allowed:
- Mowing the lawn yourself to save the IRA money on landscaping
- Personally painting the interior between tenants
- Depositing a tenant’s rent check into your personal account and then transferring it to the IRA later
- Paying a repair contractor from your personal checking account, even if you plan to reimburse yourself
The line is consistent: you stay hands-off, and the IRA handles its own finances. Crossing that line, even with good intentions, can create serious tax consequences. Prohibited transaction rules can affect the entire IRA, not just the property involved.
Keeping clean records and working with qualified professionals for property management helps reduce the risk of an accidental violation.
Traditional IRA Vs. Roth IRA Real Estate
The type of IRA you use to hold real estate affects how income and gains are treated when money eventually comes out of the account. Both traditional IRA and Roth IRA real estate arrangements can hold investment property through a self-directed structure.
With a traditional IRA, growth is tax-deferred. Rental income that flows back into the account and any profit from selling the property can grow without being taxed in the year they’re earned. When you take distributions later, typically in retirement, that money is generally treated as taxable income.
A Roth IRA works differently. Contributions go in with after-tax dollars, meaning you’ve already paid taxes on the money before it enters the account. In return, qualified distributions, including gains from real estate, may come out tax-free if certain conditions are met. That potential for tax-free growth is one reason some investors consider Roth IRA real estate appealing for long-term holdings.
A few things worth keeping in mind:
- Rental income earned inside a traditional IRA grows tax-deferred but may be taxed on withdrawal. Inside a Roth IRA, that same rental income may eventually be withdrawn tax-free if the distribution qualifies.
- Property sale profits follow the same pattern. Traditional IRA gains are taxed when distributed. Roth IRA gains may not be, assuming the account meets age and holding-period requirements.
- Financing changes the picture. If the property is purchased with a non-recourse loan, additional tax rules around debt-financed income can apply regardless of whether the account is traditional or Roth.
Neither option is automatically better. The right fit depends on your individual tax situation, how far away retirement is, and how you expect your income to look when you start taking distributions.
Buying in Cash Vs. Using a Non-Recourse Loan
Many people who are buying investment property with an IRA pay for the entire purchase in cash, using funds already sitting in the account. This keeps things straightforward. The IRA owns the property outright, and no lender is involved.
But what if your IRA doesn’t have enough cash to cover the full purchase price? Financing may be an option, though the type of loan is limited. A standard mortgage won’t work because you’re not the buyer. Lenders can’t hold you personally responsible for a debt that belongs to your IRA.
The IRA would need to use what’s called a non-recourse loan. In plain terms, this means the loan is secured only by the property itself. If the loan goes unpaid, the lender can take the property, but they can’t come after you personally. You don’t sign a personal guarantee.
Non-recourse loans can be harder to find than traditional mortgages. Fewer lenders offer them, and the terms often look different. Interest rates may be higher, and down payment requirements tend to be larger.
Borrowing inside an IRA also adds complexity that cash purchases avoid. When an IRA uses debt to buy property, the portion of income tied to that borrowed money may trigger taxes tied to debt-financed income. That means even though the IRA is generally tax-advantaged, leveraging a loan can create a separate tax obligation.
Pros, Limitations, and When This Strategy May Not Be Enough
Buying investment property with an IRA can offer some advantages. Adding real estate to a retirement portfolio can provide diversification beyond stocks and bonds. Rental income flows back into the IRA and isn’t taxed in the year you receive it, so those funds can continue to grow. With a traditional IRA, that growth is tax-deferred. With a Roth IRA, qualified distributions may eventually be tax-free, though specific rules and exceptions apply.
Real estate also has the potential for long-term appreciation, which can build value inside a retirement account over time. For people who understand the rules and have enough capital in their IRA to support the investment, the strategy can be a meaningful part of a broader retirement plan.
However, the compliance rules are strict. Every expense and every dollar of income has to stay within the IRA structure. One misstep, like paying a contractor from a personal checking account or doing a small repair yourself, can trigger a prohibited transaction.
Liquidity is another concern. Real estate doesn’t sell overnight. If you need cash from your IRA quickly, a property can’t be converted to dollars the way a stock or mutual fund can. If an unexpected expense comes up, like a new roof or a major plumbing issue, the IRA needs to have enough cash on hand to cover it.
The paperwork and administrative burden also add up. Between custodian fees, third-party property management, and detailed recordkeeping, managing IRA-owned real estate takes more effort than most traditional retirement investments.
Ultimately, whether it makes sense to use a self-directed IRA to buy property depends on your financial goals, circumstances, and tolerance for complexity.
Someone with a well-funded IRA and a solid understanding of the rules may find it worthwhile. Someone who would need to stretch to cover the purchase, or who prefers simpler, more liquid investments, may find the tradeoffs hard to justify.
The Bottom Line
Using an IRA to buy investment property can create additional diversification and long-term growth opportunities inside a retirement portfolio, but the rules and logistics are more involved than many investors expect.
Much of the complexity revolves around one core concept: keeping the investment separate from your personal finances and personal use. That separation affects how the property is purchased, managed, repaired, financed, and eventually sold.
Before moving forward, it’s important to review this strategy carefully with professionals who are familiar with self-directed IRAs, prohibited transaction rules, and real estate investing requirements.
