A self-directed IRA (SDIRA) lets you hold commercial real estate directly inside a tax-advantaged retirement account — something a standard brokerage IRA can’t do. The concept is straightforward; the execution has enough rules and restrictions that most investors need to walk through it carefully before committing capital.
This page is general and educational. It is not legal, tax, or investment advice. Always consult your CPA, attorney, and financial advisor before acting on any specific SDIRA strategy.
How SDIRA Real Estate Works
- You establish a self-directed IRA with a custodian that permits real estate investments (Equity Trust, Entrust, IRAR, and others are common providers)
- You roll over or contribute funds into the SDIRA
- The IRA — not you personally — purchases the property, and title is held in the name of the IRA
- All rent flows back into the IRA; all expenses (taxes, insurance, maintenance, if any) are paid from IRA funds
- Inside a traditional SDIRA, income and gains grow tax-deferred; inside a Roth SDIRA, growth is tax-free
Because a true NNN net-lease property has minimal ongoing landlord responsibility, it’s a common fit for SDIRA structures — there’s little day-to-day management to run into the “prohibited transaction” rules described below. See how NNN properties work as a retirement asset class →
Self-Directed IRA Real Estate Rules
The IRS restrictions on SDIRA real estate exist to prevent the account holder from personally benefiting from the property outside the retirement account. The core rules:
Prohibited transactions. You cannot personally use the property. Your spouse, children, parents, and other “disqualified persons” under IRS rules also cannot use or rent the property. You cannot perform repair or maintenance work on it yourself, even if you’re personally capable — all services must be paid for by the IRA using IRA funds.
No personal guarantee on financing. If the SDIRA uses leverage to acquire the property, the loan must be non-recourse to you personally — the IRA, not you, is on the hook if the loan defaults.
UBIT on leveraged property. Unrelated Business Income Tax can apply to the portion of income attributable to debt financing inside the IRA, even though the IRA itself is otherwise tax-advantaged. This is a common surprise for investors who assume the IRA wrapper eliminates all tax exposure — it doesn’t, on the leveraged portion.
Required minimum distributions (RMDs). Traditional SDIRA accounts are subject to standard RMD rules once you reach the applicable age, which can be complicated for an illiquid asset like real estate — you may need to structure distributions carefully if the IRA doesn’t hold enough liquid assets to satisfy the RMD without selling real property.
Pros and Cons of SDIRA Real Estate
Advantages:
- Tax-deferred (traditional) or tax-free (Roth) growth on rental income and appreciation
- Diversification away from traditional stocks and bonds inside a retirement account
- A path to hold institutional-quality NNN net-lease property inside an existing retirement structure rather than a separate personal holding
Constraints:
- Illiquidity — real estate inside an IRA is much harder to partially liquidate than a stock or bond position
- Prohibited transaction risk — a mistake (personal use, self-performed repairs, disqualified-person involvement) can disqualify the entire IRA, not just the real estate holding
- UBIT exposure on leveraged acquisitions
- Custodian fees and administrative complexity beyond a standard brokerage IRA
SDIRA real estate is not the right structure for every investor. For some, holding property personally and using depreciation against current income produces a better outcome — this is a conversation to have with your CPA before property sourcing begins.
What We Provide vs. What Your Custodian Provides
We provide property sourcing and transaction execution — finding SDIRA-eligible commercial real estate (typically NNN net-lease assets) that fits your buy box, underwriting it, and running the acquisition process. The SDIRA structure itself — establishing the account, selecting a custodian, and ensuring transactions comply with IRS rules — is set up between you, your custodian, and your tax advisor before we get involved on the property side.
Frequently Asked Questions
What is a self-directed IRA for real estate? A retirement account structure that allows the IRA itself to purchase and hold real estate directly, with a custodian that permits alternative assets, rather than being limited to stocks, bonds, and mutual funds like a standard brokerage IRA.
Can I use my self-directed IRA to buy a property I plan to live in someday? No. Any personal use of an SDIRA-owned property by you or a disqualified person (spouse, parents, children, and certain other relatives) is a prohibited transaction and can disqualify the entire IRA.
Do I need a specific type of custodian for SDIRA real estate? Yes — a self-directed IRA custodian that specifically permits real estate and other alternative assets. Not all IRA custodians offer this; common providers include Equity Trust, Entrust, and IRAR, among others.
What happens if my SDIRA real estate uses a mortgage? The loan must be non-recourse to you personally, and Unrelated Business Income Tax (UBIT) can apply to the leveraged portion of the income, even inside an otherwise tax-advantaged account.
Is SDIRA real estate a good fit for retirement income? It can be, particularly with a true NNN net-lease property that requires minimal management and therefore minimizes prohibited-transaction risk. Whether it’s the right fit for your specific retirement plan depends on your liquidity needs, RMD timeline, and overall account structure — a conversation best had with your CPA before sourcing begins.