Has Anyone Used a Self-Directed IRA for Real Estate Investing?

Question

Hey everyone,

I’ve been looking into using a Self-Directed IRA (SDIRA) for real estate investing and wanted to see if anyone here has experience with it.

From what I’ve learned, an SDIRA lets you invest your retirement funds into real estate (among other things), but it seems like there’s a lot to keep in mind. For example, navigating the IRS rules around prohibited transactions sounds tricky.

A few questions I have for anyone who’s used an SDIRA for real estate:

• What types of deals have you used an SDIRA for? Single-family, multi-family, or commercial?
• What’s been your biggest challenge when it comes to using an SDIRA for investing?
• Have you worked with any custodians that you’d recommend, or any that were a pain to deal with?
• How do you handle things like tax benefits or using SDIRA funds to scale your portfolio?

What types of deals have you used an SDIRA for? Single-family, multi-family, or commercial?

What’s been your biggest challenge when it comes to using an SDIRA for investing?

Have you worked with any custodians that you’d recommend, or any that were a pain to deal with?

How do you handle things like tax benefits or using SDIRA funds to scale your portfolio?

Would love to hear what you all have learned and what’s worked (or not worked) for you.

Looking forward to your thoughts!

Savannah Wallace · Answer

Hi Robert, I have a lot of clients who utilize this very strategy and this is generally the advice I provide when they are first starting out.

I recommend setting up an LLC under your SDIRA—often called a "checkbook control" LLC. This structure offers several advantages, including asset protection, privacy (your IRA isn’t listed on the deed as the owner), and faster transactions as you don’t have to wait for custodian approval. Note that the SDIRA must own 100% of the LLC. You cannot personally own or benefit from the LLC, and all income/expenses must go through the SDIRA.

If your SDIRA invests in real estate using a loan, be aware that this can generate UBIT as a result of UDFI (Unrelated debt-financed income). If you want to avoid UBIT on leveraged real estate, consider using a Solo 401(k) instead of an IRA, as Solo 401(k)s are generally exempt from UDFI on real estate investments. Or use only non-recourse loans.

We know that the IRS has strict rules regarding prohibited transactions and self-dealing. You cannot buy, sell, or lease the property to or from your SDIRA, nor can you personally use the property. You cannot take a salary, directly handle negotiations, or provide services (like repairs or management) to the property. All work must be performed by third parties, and all payments must come from the SDIRA. All income generated by the property must go back into the SDIRA, and all expenses must be paid from the SDIRA

Good luck with this new investing strategy!

Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Joe Homs · Answer

@Robert Ellis I've been investing and currently invest with my 401K for the last 10 years.  However make sure it a TRUE self-directed account that you have total control over.  Reach out to @Dmitriy Fomichenko to set one up.

• What types of deals have you used an SDIRA for? Single-family, multi-family, or commercial?  Mine have all been Single-Family flips.
• What’s been your biggest challenge when it comes to using an SDIRA for investing?  None, after I found the True self-directed account.
• Have you worked with any custodians that you’d recommend, or any that were a pain to deal with?  Yes, they are all a pain, and I would never work with them again.
• How do you handle things like tax benefits or using SDIRA funds to scale your portfolio?  The greatest tax benefit that you have is that you don't pay taxes on any profits that you make until you retire or start drawing funds.  You can't write anything off in this type of investment.  The goal here is to have enough money saved up for when you do retire and not rely on Social Insecurity.
• 
• Good Investing...

Ashish Acharya · Answer

@Robert Ellis Using a Self-Directed IRA (SDIRA) for real estate investing can be a powerful wealth-building tool—but you're right, it comes with strict rules and a learning curve. Here's a quick overview based on experience helping clients structure SDIRA real estate deals:

• Types of Deals: Investors commonly use SDIRAs for single-family rentals, small multifamily, private lending, and even syndications. The key is that the IRA—not you personally—must be on title, and all income/expenses flow through the SDIRA.
• Biggest Challenges: The biggest issue is avoiding prohibited transactions—you can’t live in, work on, or personally benefit from the property. Also, you can't use personal funds to pay for repairs or management—everything must be paid through the IRA. This can slow things down and limit flexibility.
• Custodians: Some custodians are slow and overly restrictive. Equity Trust, Quest Trust, and Advanta IRA are popular among real estate investors for responsiveness and experience. Make sure you choose a custodian that supports checkbook control if you want faster transaction handling via an IRA LLC.
• Tax Benefits & Scaling: SDIRA real estate is tax-deferred (Traditional) or tax-free (Roth), but you don’t get depreciation or deductions personally. Also, using leverage inside an SDIRA can trigger UBIT/UBTI taxes on the financed portion of the income. Many investors prefer SDIRAs for passive or long-term holds, while using personal or LLC funds for active flips or depreciation-heavy deals.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

James Sebastian · Answer

Savannah's post sums it up well.  I'm 5 years into a SDIRA for real estate. I have a partner who does the work and I provide capital and help with strategy/planning.  Go with a Roth if you can, that negates some of the downsides people cite about doing real estate in an IRA wrapper.  And watch for UBIT/UDFI if you are borrowing and leveraging.  I do single family through the Rocket Dollar custodian because I got a sweet deal with them when I set it up.  Low cost and relatively low service has worked so far.

Savannah Wallace · Answer

Great insight, Heather!

Robert, I'll add that if you do set up an LLC under your IRA, you do not use generic Operating Agreement language. The Operating Agreement needs to be crafted with special language to avoid engaging in a prohibited transaction. I recommend working with an attorney who is familiar with this type of LLC to assist you with drafting.

Has Anyone Used a Self-Directed IRA for Real Estate Investing?

Most Popular Reply