Real Estate IRA Rules

IRAs are one of the most frequently discussed methods for retirement savings. They are defined by the IRS as an "individual retirement arrangement," but more often called individual retirement accounts. While they are one of the most frequently discussed retirement savings options, real estate as an optional investment is rarely discussed. The reason is that most trustees do not offer real estate as an investment option. Most banks, brokerage firms and insurance companies limit investments to securities or bank savings options. Administering this type of IRA requires more work, but for the investor, it can be well worth it.

A Misunderstood IRA Investment

Real estate in IRAs are not prohibited by the IRS to be bought, sold or managed within the account. What limits most IRA owners from purchasing real estate in an IRA are the limitations imposed by trustees and the lack of knowledge the general public has about this type of IRA investment. Although they are allowed, the IRS has specific limitations for IRA real estate transactions and most trustees are not prepared to work with these limitations or simply do not understand the IRS codes associated with them. Companies such as Entrust focus specifically on IRA real estate transactions.

Higher Purchase Power

There are many who would find real estate purchases a viable retirement investment. People inherently like having real estate as part of an investment portfolio but rarely have the additional capital to purchase additional real estate. The IRA is often the exception. Investors can have tens of thousands or hundreds of thousands of dollars in an IRA, which makes real estate purchases very viable.

Own But Not Use

When purchasing real estate in a self-directed IRA, the property can not be for personal use. This means that the IRA owns the property but the person who owns the IRA is not permitted to live in the house, rent it to a spouse, parent or child. The owner is permitted to rent it to a sibling or extended relative. The house may not be furnished with personal property nor is the person who owns the IRA allowed to use personal assets to do repairs and maintenance on the property. So while a time share is permitted in an IRA, the person and his family are not permitted to use the time share owned by the IRA.

Deeds and Mortgage Notes

Interest-bearing notes are allowed in IRAs, as well. For IRAs that do not have a lot of money already invested in them, this can be a great way to leverage tax-deferred growth. The IRA can either own the note completely or partially and can even be a subordinate position. This means that a person can be part of a larger real estate transaction on a proportionate level. But remember the family use rule for this. Don't co-mingle personal money with it. Purchasing tax lien deeds can be a great way to get a solid interest rate in the hope that an actual property can be acquired for pennies on the dollar.


A person can take IRA money and loan it for someone else to purchase real estate property as well. Once again, this person can not be one of the excluded people such as a parent, spouse or child, but it allows equity growth in a collateralize loan. The interest rate for the loan must follow legal limits and not be excessive. This is a great way for someone to help another person gain enough for a down payment on a home and allow the IRA owner to get a solid rate of return, probably higher than bank.