Generic filters
Exact matches only
Can you use a self directed IRA to purchase real estate

With the recent unsteadiness of the economy and stock market, it’s reasonable to ask if you can use a self directed IRA to purchase real estate. Most traditional IRA and 401(k) account holders are invested in the typical stocks and bonds, which rely on how the economy is doing, and makes for risky investments. However, a self directed IRA allows for alternative stable investments that don’t depend on the ups and downs of the economy. Because of this, it makes sense to inquire if a self directed IRA can be used to invest in safe assets such as rental properties.

With that being said, let’s dive into the question at hand!

Can you use a self directed IRA to purchase real estate? A self directed IRA is designed to allow for the purchase of real estate, specifically rental properties. For this to happen, an investor obtains approval from the custodian who manages the SDIRA. Necessary steps are then taken to buy the property. If there is an SDIRA LLC structure, the custodian approval process can be bypassed. 

How Can You Use a Self Directed IRA to Invest in Rental Real Estate?

Now that you know you can use an SDIRA to invest in rental properties, how do you make it happen? Investors have been purchasing real estate with their SDIRAs for many years now. Because of this, the process has been streamlined, making it easy to own performing assets within your SDIRA.

We are going to cover two ways of buying real estate through your self directed IRA:

  1. Purchasing real estate yourself through your SDIRA custodian.
  2. Using a full-service investment company that takes care of all the details for you.

Before we dive in, for those of you who have a traditional IRA that’s invested in stocks, watch this quick video to see why switching to a self directed IRA can ensure your retirement funds are safe and grow substantially:


Purchasing Real Estate Yourself Through Your SDIRA Custodian

We’re assuming since you are inquiring if you can use a self directed IRA to purchase real estate, that you already have this type of retirement account. But if you don’t, if you only have a traditional IRA or 401K, you can easily convert those funds into an SDIRA account. If you are unfamiliar with the process, the following article – How To Use a Self-Directed IRA To Invest in Real Estate, touches on the topic. Also, if you have a 401k, and you’re feeling uncomfortable about switching to an SDIRA, take a look at this eye-opening article to find out why the 401(k) is a lousy way to build wealth. It will have you wishing you would have switched to an SDIRA a long time ago.

If you have an SDIRA, or will have one soon, here are the general steps you would take:

Step 1: Find a Rental Property that Will Yield a High ROI

You will want to locate a piece of property that you are sure will have a high Return on investment. One that will generate a steady and profitable cash flow. You can view our post – How to Find Cheap Real Estate Investment Properties for some insider tips on how to find profitable rental real estate.

When seeking out lucrative properties, you will need to consider a few things such as the crime rate in the area, the current rental market, how long the property has been on the market, how is the vacancy rate in the neighborhood, and are there solid businesses in the surrounding area to help with recession proofing your investment. You can learn more about this by reading our article – Recession Proof Your Investing – An Interview with Jarrett. In it, Clayton Morris speaks with Jarrett about what was done to recession proof his investments. The post also goes into detail about how he used a self directed IRA to make it all happen.

Once you feel you have landed the perfect rental property that will generate the proper cash flow, confirm this by utilizing the 1% rule. It’s a formula that will let you know if you will, indeed, generate enough cash flow for it to be a profitable deal. You can learn how to apply this formula by reading our post on the 1% Rule of Real Estate Investing. This simple strategy can save investors thousands of dollars.

After you have confirmed the rental property is the one you would like to purchase with your self directed IRA, it’s time to move on to the next step.

Step 2: Present the Property to Your SDIRA Custodian for Approval

You will now submit the potential property to your SDIRA custodian for approval. For those of you who may be new to the game, a custodian is typically a financial institution that holds, watches over, does the record-keeping, and is responsible for the approval of, and the executions of investments that are purchased through a self directed IRA.

Once the asset is deemed eligible, you can move to the next step of pushing the deal through. However, it’s recommended that before moving to the next step, you should discuss with your custodian, the rules of investing with a self directed IRA. Unless, of course, you are a seasoned investor.

Additionally, if you want to have more control over the process, save thousands in taxes, and have a blanket of protection over your investment, you may want to set up an SDIRA LLC structure. Plus, when you purchase a property through a self directed IRA that’s under an LLC, you will be able to skip the custodian approval process altogether.

Step 3: You and Your Custodian Move Forward with Purchasing the Property

Now that your investment has been approved, you can make an offer in the name of the SDIRA. Just as you would do so when purchasing a personal home, appraisals and inspections will need to be taken care of. If everything moves forward in your favor, then closing documents will need to be in order. Your custodian will sign these documents on behalf of the SDIRA. The transaction is then funded, final documents are signed, and the deal is finalized.

If your self directed IRA does not have enough funds to fully pay for the purchase, you may be able to easily obtain the remaining funds from Fund&Grow, a company that many of our customers work with. Take a look at our Fund&Grow page for more information on how they can get you unsecured business credit cards with 0% interest that you can use to purchase real estate.

Use a Full-Service Investment Company that Takes Care of All the Details for You

The other option for using your self directed IRA to buy a rental property is to use a full-service investment company such as Morris Invest. We will take care of everything, every step of the way. From setting up a self directed IRA for you, if you do not have one, to finding the perfect piece of real estate, we make it really simple to start cash flowing immediately.

Here is a summary of what Morris Invest does for those purchasing real estate with their SDIRA:

  • Recommend a professional and trusted SDIRA custodian.
  • If needed, set up a self directed IRA for you.
  • Assist in setting up an LLC for maximum protection and tax benefits. You can also reach out to Scott Smith from Royal Legal Solutions, or Corporate Direct for more detailed assistance with LLCs, asset protection, and tax savings.
  • Morris Invest specializes in single and multi-family homes.
  • Full-service investment companies find the most lucrative properties and locations.
  • Our properties are fully renovated and ready to cash flow
  • New construction properties are also an option for those who want to customize. There are many tax-saving benefits when going with new construction. You can read more about how much money you can keep in your pocket by simply reading our recent post – The Power of a New Construction Cost Segregation Study Can Save You Thousands.
  • Your rental property can be professionally taken care of by a seasoned property manager that we place for you.
  • We place a fully vetted, long-term tenant in your rental property.

If you feel you would like to move forward with using your self directed IRA to purchase rental real estate, and want all the details taken care of for you, schedule a free call with Morris Invest. We would love to get you set up with a property that will provide you with a steady cash flow for years to come.

Helpful Articles on Real Estate Investing by Morris Invest

If you want to fine-tune your real estate investment skills, here are a few posts that we put together just for that purpose:

You Can Use Your Self Directed IRA to Buy Profitable Real Estate Investments!

Using your SDIRA to purchase real estate is a wise move when it comes to securing your retirement funds. It keeps your money out of harm’s way when the economy tanks, or when the stock market decides to take a dive. It provides you with 100 percent control of your performing asset, and enables you to own a cash flowing property that can set you on the path to financial freedom.

For more information on self directed IRAs and a few tips, grab a cup of coffee, and watch this video with Clayton Morris:

Ready To Build Passive Income Through Rental Real Estate?

Ready to talk about your goals? We're here to show you the tools and teach you the process to begin earning legacy wealth for you and your family.

Schedule a consultation

Freedom Number Cheat Sheet updated image

Find Your Freedom Number!

How much real estate will it take to reach your dreams? Unlock your "freedom number" using the step-by-step process I use with my own family.