Real Estate IRA

Best Self-Directed IRA For Real Estate

You’ve heard about opening a Self-Directed IRA for real estate, but chances are you could use some clarity. Let’s start by addressing why a Self-Directed real estate IRA is hard to find at the big brokerages. Then, we’ll break down Self-Directed IRAs based on the property type. Once we’ve identified the nature of the property, we can move on and determine which platform is the best Self-Directed IRA for real estate.

Can you get a Self-Directed IRA for real estate at a big brokerage?

If you’re looking to place real estate in your IRA, chances are you’ll have to look beyond the big brokerages. Institutions like Fidelity and Charles Schwab are focused almost exclusively on market products and they excel in that area. (In fact, we would even suggest speaking to your financial advisor about diversifying in the market as well.) The brokerage systems have been built to streamline investing in products like stocks, but those same systems are not optimal for alternative assets. If you want to open a Self-Directed IRA that can hold physical real estate as an asset, you will need to contact a facilitator or Custodian that specializes in alternative assets. Broad utilizes Madison Trust as its self-directed Custodian.

The Takeaways

  • There are different kinds of Self-Directed IRAs and each is optimized for different kinds of real estate investing.
  • A Custodial Self-Directed IRA works for “hands-off” real estate investing like a private placement.
  • An IRA LLC is optimized for properties that require a lot of transactions like rental units.
  • A Solo 401(k) is the best choice for self-employed investors and can be used to invest in any kind of real estate.

Self-Directed Real Estate IRAs and Property Types

There are many kinds of real estate investments that can be owned by a Self-Directed IRA. Here’s a quick overview of the most popular four.

Rental Unit

A perennial favorite of the investing community, rentals are one of the most intuitive assets. The Self-Directed IRA will purchase real estate in the form of a home, multi-family, or apartment building. Then the account holder will take over as the functioning landlord. Profit is accrued via the rental income, as well as by the sale of the property at a later date. In these kinds of assets, the rental income serves both as a buffer for real estate values, as well as a legitimate source of income on its own. Managing a rental is labor-intensive, but if one chooses a conservative asset, it almost always pays off. If the Self-Directed IRA account holder is willing to forgo some of the rental income, the account can hire a property management firm to take care of day-to-day activities.


Here the Self-Directed IRA purchases a renovation property, rehabs it, and then tries to sell it immediately at a profit. The fix-and-flip has become a media darling and many investors have been inspired to give it a go. However, as with any investment, it pays to move with caution. Get educated about the real time frame for renovating your property, how much it will realistically cost, and whether or not the renovated property will attract buyers. Your retirement will be affected by these decisions, so make sure that your Self-Directed IRA invests wisely.

Real Estate Investment Trust

A Real Estate Investment Trust (REIT) is a company that purchases income-producing properties and then shares the profits with investors. The types of real estate owned by the REIT can vary. Popular assets include apartment buildings, warehouses, and shopping centers. When your Self-Directed IRA invests with a REIT, it’s a very hands-off process. Choose the REIT that you feel will deliver the best return and then send them a check. The REIT itself will handle all management activities.

Private Placement

A Private Placement is a non-publicly traded fund that is usually limited to a few investors. Often medium-sized real estate investments are offered as a Private Placement. When your Self-Directed IRA invests in real estate via a Private Placement, the process will be similar to that of a REIT.

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Fortunately for retirement investors, there are a lot of Self-Directed IRA platforms to choose from. That means that you’ll be able to choose one that is a great fit for your real estate type and investment style.

  • Custodial Self-Directed IRA – A Custodial Self-Directed IRA is one where you set up an account with a Self-Directed Custodian, and then have the Custodian act as your agent for all of your transactions. This is a great choice for real estate when the property under consideration will not require a lot of transactions. The costs are economical, and the hands-off nature of the property means you won’t have to interact with the Custodian too much. If you’re looking for your Self-Directed IRA to invest in a Real Estate Investment Trust or a Private Placement, then this kind of account will be ideal.
  • Self-Directed IRA LLC – An IRA LLC starts with the standard Self-Directed IRA set-up, but then takes it further with a dedicated IRA LLC. The purpose of this IRA LLC is to give investors a vehicle that they can use to make quick, economic, and hassle-free transactions. This is accomplished by opening a checking account for the IRA LLC and performing transactions just by writing a check. Since the checkbook is associated with the IRA LLC, any transaction it performs will automatically be attributed to the retirement account. If the real estate in your Self-Directed IRA will require active management – like a rental unit or fix-and-flip – then a Self-Directed IRA LLC is the way to go. It has a higher set-up cost, but it usually ends saving the investor hundreds of dollars in transaction fees. It also avoids having to go through the Custodian every time that you need a payment made.
  • Self-Directed Solo 401(k) – If you’re self-employed or have some self-employed income, you might want to consider opening a Self-Directed retirement account in the form of a Solo 401(k). This gives you the major benefits of an IRA LLC, plus additional elements like higher contribution amounts.

Yes. A Self-Directed Roth IRA can invest in real estate with any of the self-directed platforms. The process is identical with the only difference being that your Self-Directed Roth IRA is funded with post-tax dollars instead of pre-tax income. The account holder opens one of the self-directed platforms (Custodial IRA, IRA LLC, Solo 401(k)) as a Roth and then purchases the real estate accordingly.

The rules for purchasing real estate with a Self-Directed IRA are detailed but relatively simple. To get a deeper understanding of these rules, especially as they pertain to real estate, please visit our Rules for Real Estate in a Self-Directed IRA. In brief, the rule you’ll run into the most is Prohibited Transactions. This is a regulation that dictates that you - or somebody close to you - may not receive any benefit from the IRA account. Obviously, once you’re ready to retire and withdraw the money, it’s all yours. But until that point, the IRS requires a hands-off approach. Practically you’re not allowed to give a non-contribution benefit to the Real Estate IRA, nor can you receive any. Real-life examples of Prohibited Transactions include letting your children stay in a property owned by your Self-Directed IRA or allowing your father to do rehab on it.

Moving Forward with Real Estate in a Self-Directed IRA

Investors can take a variety of paths when investing in real estate with a Self-Directed IRA. Let’s outline a typical investor journey:

  1. Get educated about real estate investing – Before moving ahead with a Self-Directed IRA to invest in real estate, take the time to get educated about the process. Speak to real estate professionals, agents, or anybody who has already opened a Self-Directed IRA. You’ll get a sense of what’s involved and whether it will work for you personally.
  2. Choose a property – Once you decide that purchasing real estate with a Self-Directed IRA is a good route for you, start scouting the area for potential investments. What qualifies a property as a good investment asset is beyond the scope of this article; however, it is important to find out what you should be looking for. Oftentimes, local real estate professionals can help steer you in the right direction.
  3. Choose the right Self-Directed IRA – This decision will be based on the factors outlined above, with an emphasis placed on your favored type of property and how much you want to be involved with it. Speak to a Broad Specialist to get a clearer understanding of which Self Directed IRA is ideal for your real estate investing.
  4. Open the Self-Directed IRA account – All Self-Directed IRA accounts must be held by a Custodian. Opening the account is usually simple and quick. If you opt for the IRA LLC, then your facilitator will start that process in motion. Once the account is fully established, you’re ready to make your first real estate purchase.

Buying Real Estate With an IRA

Learn more about the IRA LLC and how it is optimized for purchasing real estate.

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