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3 Ways to Invest in a Self-Directed IRA in Real Estate

by Ken Corsini on May 23, 2012 · 5 comments

retirement real estate

With the continued volatility surrounding the stock market, more and more investors are converting their retirement accounts into self-directed IRAs. We speak to investors almost every day who want to invest in real estate in some form or fashion and want to use retirement funds (that probably aren’t earning enough to keep up with inflation) to do this.  Most investors intuitively know that the opportunities to invest in real estate right now are tremendous; however, not all investors have the same investing goals or risk tolerance when it comes to investing.

Many of the investors I speak to simply want to buy and own residential properties through their IRA. Others want to make a good return, but not deal with the hassles of being a landlord. One of the great things about real estate is there are so many different strategies and approaches to suit different tastes.

3 Strategies Investors Can Use to Invest Self-Directed Funds in Real Estate:

1.)    Buy and Own Individual Properties:  This is the most obvious way to invest self-directed funds in real estate; however, investors can accomplish this type of investing in a few different ways. Most investors simply pay cash for individual properties. Other investors are able to obtain non-recourse loans from banks that specialize in this or from private lending groups.  Lastly, some investors are able to buy percentage ownership in a particular property through their IRA. This can be a great strategy when investing with partners.

2.)    Private Lending (hard money):  Another popular way to invest retirement funds is through private lending opportunities. Private lending (also known as hard money), is where an investor lends money to another investor or company actively working in the real estate market. We work with a number of private lenders in our business who like the higher rates of return associated with hard money, but without the headaches sometimes associated with owning property. This strategy works great for investors with a low risk tolerance or hands-off approach.

3.)    Investing in a Real Estate Fund:  I have seen a number of real estate funds pop up over the last few years. Whether you are investing in a large REIT (Real Estate Investing Trust) or a small private placement fund, there are numerous opportunities to pool money with other investors to take advantage of this real estate market. The great thing about investing in a pool is the ability to have your investment in a diversified portfolio of real estate activities. For example,  a fund that my company is currently involved with uses funds to hold individual properties (for cash flow and long term appreciation), for hard money lending and for tax deed investing.  This is great because your invested funds have the benefit of being diversified into a number of different activities that all have the potential to generate very good returns without leaning too heavily towards a particular area.

For those investors interested in investing retirement funds in real estate, the great news is there is something for just about everybody. Whether you want to own individual properties or take a more hands-off approach,  the opportunities to invest in real estate right now are incredible … especially when you couple this with the ability to use a self-directed IRA to accomplish this.

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{ 5 comments… read them below or add one }

Tanisha May 28, 2012 at 8:47 pm

Yes my reia group talks heavily about this


Troy Stites May 31, 2012 at 12:26 pm

Hi Ken,

Good article. There is a large trend of investors establishing SDIRA’s (Self Directed IRA) and I think it is only going to cascade from here.

One thing you left out of your “Hard Money” section is the option of financing/leveraging IRA dollars with non-recourse financing. Although it is hard to come by it is a great option as the interest rates are much lower than hard money.


Catherine Wynne June 3, 2012 at 6:37 pm

Many IRAs are too small to purchase a property without a partner. Our clients have found many creative ways of partnering their plans to purchase real estate without giving up control of the investment. REITs are a very different animal from direct real estate ownership because so much of the control is handed over to the manager of the REIT. Due diligence on those running the REIT is essential as is asking the tough questions about experience, financial transparency and the appropriateness of this particular investment for a tax deferred/free account.


Tom August 2, 2012 at 12:21 pm

a good source for information on self directed ira’s and 401k’s


Katherine September 4, 2012 at 7:09 pm

With a self-directed IRA, investors can combine their knowledge and expertise of the real estate market with the tax advantaged growth of their retirement plan, creating the ultimate wealth building machine. Our clients have also found many creative ways of partnering their plans to purchase real estate without giving up control of the investment.


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