Options for Funding Real Estate Investments in Your Self-Directed IRA

Options for Funding Real Estate Investments in a Self-Directed IRA

Real estate is one of the most popular alternative assets in a self-directed IRA (SDIRA). There are tax-sheltered benefits associated with funding real estate investments in an SDIRA. All income and expenses are tax-deferred or even tax-free. There are many ways to buy the investment within your IRA. The three most popular ways to do so are buying with cash, partnering funds, and borrowing money.

Cash Purchases

Cash purchases are IRA funds used to buy an investment. If your IRA has enough funds for the entire investment, it can buy 100 percent of the asset. An undirected cash fund is money in an IRA account waiting for investment use. Buying any investment with “cash” has quick turnaround times.

Partner Funds

You could also partner funds to buy real estate investments. Your IRA could partner with a friend, family member, another investor, or yourself. When you partner, each partner would own a percentage of the investment. Although you cannot rent to, buy from, or sell to any disqualified party, you can partner with them. For example, your IRA could own 50 percent of a property and your mother’s IRA could own the other 50 percent. All rental income and sale proceeds would split 50/50, half into your mother’s IRA and half into yours. This also applies to expenses such as your property tax bill. All expenses divide and paid by percent ownership.


If you don’t have the funds available to buy the investment, your IRA can borrow money in the form of a non-recourse loan. When using a non-recourse loan, the IRA owner cannot personally guarantee the loan. IRS rules prohibit an individual from using personal credit for the benefit of their IRA. When borrowing money using a non-recourse loan, the investment is the collateral. The lender’s only recourse if there is a default is to foreclose on the property. These loans typically require a larger down payment. Owner financing will qualify as long as there is no personal guarantee from the IRA owner.

Keep in mind that when financing your property with your IRA the account may incur yearly unrelated business income tax (UBIT). That is why it is important to consult with your financial advisor or CPA to avoid complications with the IRS and to help determine the best option to make your investment purchase.

To learn how to invest in real estate using your retirement funds please contact us at (239) 333-1032.