Anyone can use their retirement plan to invest in real estate you just need to have the proper plan in place. (Photo: Pexels).


Duane Duggan, Realtor and Author RE/MAX of Boulder

When most people think of IRAs, SEPs, and 401ks, they usually think of investing in the stock market or mutual funds. However, if you set up a self-directed IRA account (SDIRA), your retirement plan has the capability to hold real estate along with a variety of other real estate-related investments, such as notes. Anyone can use their retirement plan to invest in real estate – you just need to have the proper plan in place.

Using retirement funds to invest in real estate has been available since the 1970s, but plan administrators have restricted investment in real estate, not the IRS. In fact, the idea of real estate not being allowed is so entrenched that many CPAs are now just learning about the concept and “approving” it for their clients.

Here are the steps you can take and requirements you should be aware of.

Setting up your plan to invest in real estate
The first step is to find a plan administrator or custodian that specializes in self-directed IRA plan services because many traditional brokerage firms do not. Next, determine which type of retirement plan fits your situation best. The custodian can help open your account or roll over your current IRA or 401K savings into a SDIRA. Not all plans can be rolled over or transferred, so check with your current retirement plan administrator, your tax advisor, and the new SDIRA custodian. A SDIRA custodian will not give investment advice, but only acts upon direction from you. The custodian typically charges a fee per asset per year to administer the plan. Fees may also be structured based on the size of the account. They typically will also have a charge per check written on behalf of the account. The IRA holder makes all investment decisions, not the administrator. Once your plan is set up and funded, you are ready to go.

Permissible real estate-related investments
You are able to invest in any form of real estate, such as single-family homes, condos, multi-family housing, mini-storage, industrial or commercial properties, land, farmland, and more. You can also buy, sell, and flip properties. However, the property cannot be one that you, your spouse, your parents, your children or “disqualified persons” currently own, or property that you would personally benefit from, such as a vacation home for your family. Other investments can include: (1) Real Estate Options meaning your plan can make a loan to another party and secure it with a note and deed of trust secured by real estate, (2) discounted notes, (3) ownership share of a limited liability company or LLC, (4) Triple Net leased properties, (5) property improvements or renovation.

The ability to invest in a hard asset like real estate in your retirement account will allow you to diversify and spread out the risk. In addition to real estate, you can still invest in all other forms of “traditional” retirement account investments. In fact, you can make any investment allowed by law.

What you can’t invest in (it’s a very short list)
1) Life Insurance
2) Collectibles

Using cash from your plan to buy real estate
If your retirement plan has enough money, you might be able to buy a property free and clear. As an example, if you had $500,000 in the plan, you could buy a single-family house. If it rented for $24,000 per year, and you factored in expenses for taxes, insurance, maintenance, and management, after those expenses, the net cash flow might be $19,000. The net cash flow can remain in your plan and grow tax-free. You need to direct your administrator where to invest the cash.

Using financing to buy real estate in your retirement plan
Non-recourse financing must be used for any financing required within your retirement plan. This is because you cannot be personally liable, and your plan is not a person. Non-recourse usually means that you will be required to have a larger down payment. Non-recourse loans are not available through a typical 1-4 unit lender, but they are available through experienced IRA lenders.

In Part 2 of this two-part series, I will discuss the process of buying real estate with your plan, UBIT, multi-unit buildings, using an LLC, managing the property and more.

Be sure to consult with a financial planner, tax advisor and Realtor as you move forward.

By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail [email protected], call 303.441.5611 or visit