How to Buy Rental Property with Your IRA
After decades of hard work building your 401k, you might be looking at real estate as a way to protect and grow your savings. Many workers—from retired teachers to former union electricians—use their IRA to buy rental property that generates income without stock market risk. Here's exactly how it works.
Open Real Estate IRAThe Complete Process (7 Steps)
Open a Self-Directed IRA
First, you need a self-directed IRA (SDIRA) with a custodian that allows real estate investments. Traditional brokers like Fidelity don't allow this.
Key Tips:
- Choose between Traditional (tax-deferred) or Roth (tax-free) SDIRA
- Consider checkbook control for faster transactions
- Compare custodian fees carefully
Fund Your SDIRA
Transfer funds into your new self-directed IRA. You can rollover from an existing 401(k), IRA, or other retirement account, or make annual contributions.
Key Tips:
- Rollovers are tax-free if done correctly (direct trustee-to-trustee)
- 2026 contribution limits: $7,000 ($8,000 if 50+)
- Ensure you have enough for purchase + reserves for expenses
Find an Investment Property
Research and identify a rental property that fits your investment goals. Remember: this is a pure investment—you cannot live in it or rent to family.
Key Tips:
- Analyze cash flow (rental income vs expenses)
- Research the local rental market
- Get professional inspections
- Factor in property management costs
Make an Offer in the IRA's Name
When making an offer, the buyer is your IRA, not you personally. Work with a real estate agent who understands SDIRA transactions.
Key Tips:
- Contract should show buyer as: '[Your Custodian] FBO [Your Name] IRA'
- Earnest money comes from the IRA, not personal funds
- Inform your custodian before making offers
Complete Due Diligence
Conduct inspections, title search, and appraisal. All costs are paid from the IRA. Your custodian will coordinate the purchase.
Key Tips:
- Home inspection, pest inspection, etc. paid by IRA
- Title insurance and closing costs from IRA funds
- If using non-recourse loan, coordinate with lender
Close on the Property
At closing, the IRA becomes the legal owner of the property. The deed will show your custodian as owner for the benefit of your IRA.
Key Tips:
- Title vested in: '[Custodian] FBO [Your Name] IRA'
- All closing documents signed by custodian (or you if checkbook IRA)
- Funds wire from IRA account to title company
Manage the Property
Hire a third-party property manager or manage it yourself (without compensation). All rental income goes to the IRA; all expenses are paid from the IRA.
Key Tips:
- You cannot receive payment for managing the property
- Hire unrelated contractors for repairs
- Keep reserves in IRA for vacancies and repairs
- Rental income grows tax-advantaged!
Financing Options
All Cash (Recommended)
Buying property outright with IRA funds is the simplest approach.
- No UBIT tax on rental income
- Simpler transactions
- No debt payments reducing cash flow
- Easier to manage
Non-Recourse Loan
If you need financing, only non-recourse loans are allowed (you can't personally guarantee).
- Leverage increases returns (and risk)
- UBIT applies to debt-financed income
- Higher down payments (30-40% typical)
- Fewer lender options available
Common Mistakes to Avoid
Ready to Put Your Savings to Work?
You've done the hard part—building your retirement savings through years of work. Now you can turn that money into rental income that isn't tied to Wall Street. Start with a self-directed IRA that allows real estate.