Can a Self-Directed IRA Own Investment Property?

by Tim Plaehn ; Updated April 19, 2017

It is possible to purchase most types of investment real estate property with funds from an individual retirement account. The IRA owner must take care to follow the rules concerning a self-directed IRA; however, there are companies set up for the express purposes of helping individuals set up the correct type of IRA to purchase investment properties.

Types of Properties

The IRA rules allow almost any type of investment property to be owned by an IRA. You can buy single-family homes, apartment buildings or commercial properties. Even raw land can be purchased and owned in an individual retirement account. The major restriction is that the property purchased through an IRA cannot be purchased from a related party. Related parties include the IRA owner, family members, the company providing IRA custodian services or a company where one of the previously listed individuals has significant ownership interest.

IRA Custodian

To buy real estate with IRA money, you must contract with an individual or company to act as trustee or custodian for the IRA. An IRA account is set up with the custodian, then your IRA money can be transferred into the account. To buy property you direct the custodian to purchase the property and the custodian will handle the completion of the sale. The custodian will collect the rents from the property and pay expenses such as taxes and insurance. There are several companies providing self-directed IRA services on a nationwide basis.

Real Estate Mortgages

Financing a portion of the cost of properties purchased by an IRA is allowed, but significantly complicates the paperwork. If the IRA-owned property has a mortgage, a portion of the income will be classified as unrelated debt financed income (UDFI), and the IRA must pay taxes on the value of the property income attributed to the portion of the property financed with a loan. The simpler solution to buying investment properties with IRA money is to stick with cash purchases.


An IRA owner who elects to use those funds for real estate investing should be aware of the consequences. Using the tax-deferred IRA money eliminates some of the tax advantages available with regular real estate investing. Tax-deductible items, such as property taxes, mortgage interest and depreciation, are not available on investment property owned in an IRA. When withdrawals are made from the IRA, those withdrawals will be taxed at the owner's regular income tax rate. Capital gains from properties purchased with non-IRA money may qualify for a lower capital gains tax rate.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.