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Retirement
Complete Guide

Buying Rental Property with a Self-Directed IRA: Complete Rules

You can buy rental property with a self-directed IRA, but the IRS has strict rules. You cannot live in the property, hire family members to manage it, or do repairs yourself. All expenses must be paid from IRA funds and all income must return to the IRA. If you need a mortgage, it must be a non-recourse loan, and the leveraged income will trigger UBIT. Violating prohibited transaction rules can disqualify your entire IRA.

  • Your IRA owns the property, not you personally
  • Prohibited: living in it, hiring family, doing repairs yourself
  • All expenses from IRA, all income back to IRA
  • Mortgages must be non-recourse (40-50% down required)
  • Prohibited transaction = entire IRA disqualified + taxes + penalties

Step-by-Step: How to Buy Rental Property with Your IRA

01

Open a Self-Directed IRA

Choose a custodian that allows real estate investments (Equity Trust, Entrust, IRA Financial Trust, etc.). Not all IRA custodians allow alternative assets.

02

Fund Your Account

Transfer or roll over funds from an existing IRA or 401k. You can also make new contributions up to the annual limit ($7,000 or $8,000 if 50+ for 2026).

03

Find the Property

You identify the property, but your IRA makes the purchase. The property title will be in the name of your IRA custodian for the benefit of your IRA.

04

Perform Due Diligence

Hire independent inspectors, appraisers, and contractors. You can research and evaluate, but all expenses must be paid from IRA funds.

05

Direct Your Custodian to Purchase

Tell your custodian to proceed. They handle all paperwork, wire funds, and sign documents on behalf of your IRA. You sign a direction of investment form.

06

Manage Through Your IRA

Hire a property manager (not yourself or family). All rental income goes back to the IRA. All expenses (repairs, taxes, insurance) are paid from IRA funds.

Prohibited Transactions: What You Cannot Do

IRC Section 4975 defines prohibited transactions for IRAs. These rules exist to prevent you from using your IRA for personal benefit before retirement. The consequences are severe: your entire IRA can be disqualified, meaning the full balance is treated as a taxable distribution.

You CANNOT:

Live in or vacation in the property
Let family members live in or use it
Do repairs or improvements yourself
Hire your spouse, children, or parents to manage it
Pay property expenses from personal funds
Receive rental income personally
Buy property from yourself or family
Sell IRA property to yourself or family

Disqualified Persons (IRC 4975)

These rules apply to "disqualified persons": you, your spouse, your lineal ascendants (parents, grandparents), lineal descendants (children, grandchildren), their spouses, and any entity you control. Siblings are generally not disqualified persons, but transactions with them can still raise red flags.

Non-Recourse Lending Requirements

If your IRA does not have enough cash to buy property outright, you can use financing—but it must be a non-recourse loan. This means the lender can only seize the property itself if you default. They cannot go after your other IRA assets or your personal assets.

Typical Non-Recourse Loan Terms for IRAs

Down Payment40-50%
Interest Rate1-2% above conventional
Loan Term15-20 years
Personal GuaranteeNot allowed

Note: Leveraged income triggers UBIT. See our UBIT rules guide for details.

The Golden Rule: All In, All Out Through the IRA

All Income to IRA

  • Rent checks deposited directly into IRA
  • Security deposits held in IRA
  • Sale proceeds go to IRA
  • Insurance payouts go to IRA

All Expenses from IRA

  • Property taxes paid from IRA
  • Insurance premiums paid from IRA
  • Repairs and maintenance paid from IRA
  • Property management fees paid from IRA
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Frequently Asked Questions

Can I buy rental property with my IRA?
Yes. A self-directed IRA can purchase rental property including single-family homes, multi-family units, commercial property, and raw land. The IRA is the owner of the property, not you personally. All expenses must be paid from IRA funds and all income must return to the IRA. You need a custodian that allows real estate investments.
Can I live in a property owned by my IRA?
Absolutely not. Living in, vacationing in, or personally using property owned by your IRA is a prohibited transaction under IRC Section 4975. This also applies to your spouse, children, grandchildren, parents, and their spouses. Violating this rule can result in the entire IRA being disqualified, with immediate tax on the full balance plus a 10% penalty if under 59 1/2.
Can I do repairs myself on my IRA-owned rental property?
No. You cannot provide services (including maintenance, repairs, or improvements) to property owned by your IRA. This is considered a prohibited transaction because you are providing value to your IRA. You must hire independent third-party contractors for all work. The IRA pays the contractors directly.
What happens if I accidentally make a prohibited transaction?
If the IRS determines a prohibited transaction occurred, the entire IRA is treated as distributed on the first day of the year in which the transaction happened. You would owe income tax on the full IRA balance plus a 10% early withdrawal penalty if under age 59 1/2. The consequences are severe, which is why working with an experienced custodian is critical.
Can my IRA get a mortgage to buy rental property?
Yes, but it must be a non-recourse loan. This means the lender can only seize the property if you default—they cannot go after your other IRA assets or personal assets. Non-recourse loans for IRAs typically require 40-50% down payment, carry higher interest rates (1-2% above conventional), and have shorter terms (15-20 years). The mortgage income triggers UBIT (Unrelated Business Income Tax).