Can You Use An IRA To Buy Real Estate? Here’s What You Need To Know

An IRA, or individual retirement account, may already play an important role in your overall retirement plan.

However, you may not realize you can use this tax-advantaged plan to purchase real estate and to potentially further grow your savings and diversify your investments.

But should you use your IRA to buy real estate?

Consulting a fiduciary financial advisor can be a great first step to determining if buying real estate with your IRA makes sense for your financial plan. That's why SmartAsset created a free tool to help match you with vetted financial advisors.

Click here to take SmartAsset’s quick retirement quiz and get matched with vetted advisors in just a few minutes. The fiduciary financial advisors you match with are legally bound to work in your best interest.

SmartAsset’s latest proprietary model reveals that working with a financial advisor could potentially add from 36% to 212% more dollar value to investors’ portfolios over a lifetime, depending on multiple unique, individual factors.¹

SmartAsset's no-cost tool can help you find and compare vetted fiduciary advisors. How does the free tool work? It's easy:

• Short questionnaire takes just a few minutes
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The fiduciary financial advisors you match with are legally bound to work in your best interest. You may even be able to instantly connect with an advisor for a free introductory call. Advisors are vetted through our proprietary due diligence process.

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The Value of an IRA

An IRA is a retirement savings account designed to help you save in a tax-advantaged way. Unlike a 401(k) plan, an IRA does not need to be tied to an employer.

Money held in an IRA can be used to purchase mutual funds, target date funds, exchange-traded funds (ETFs), individual stocks, bonds and certificates of deposit (CDs), as well as alternative investments like real estate, commodities and precious metals.

When you start taking distributions from your IRA in retirement, those distributions will be taxed as income. However, Roth IRAs are funded with after-tax dollars, so withdrawals may be tax-free.

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How to Use Your IRA to Buy Real Estate

To further diversify your retirement portfolio and potentially grow your savings, you may consider investing your IRA funds in real estate.

Here’s how it works:

Step 1: Choose a Self-Directed IRA

Open and begin funding a self-directed IRA. These accounts allow alternative investments for your retirement savings.

It’s also important to note when buying real estate in a self-directed IRA, your IRA will technically own the asset, not you personally.

Step 2: Choose a Custodian

Unlike self-directed IRAs and traditional or Roth IRAs, self-directed IRAs are managed by a custodian.

This fee-based custodian will facilitate all transactions involving your new IRA, ensuring all IRS regulations are followed and proper financial reporting is completed. If these rules aren’t followed precisely, you may find your IRA disqualified.

Step 3: Choose a Property

Any property you choose to buy with your real estate IRA must be strictly an investment property.

Improper use of your real estate IRA’s property may have serious financial implications.
To avoid these, ensure the investment will not be utilized by any “disqualified” individuals, which the IRS identifies as your immediate family, co-property owners and those of “lineal descent” (children, grandchildren, great-grandchildren and their families).

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Step 4: Make Your Purchase

Since your IRA would technically own the property, it will need to be approved for a mortgage loan.

As a result, many investors may opt to purchase the property outright and in total. Depending on your IRA balance, this may limit your investment property options.

Step 5: Managing the Property

Your investment property may encounter taxes, maintenance and management expenses over time. However, these also must be covered by your IRA balance.

This may present a problem if your property incurs a very large expense (new roof, foundation repair, etc.) and you don’t have enough in your IRA to cover those expenses.

In that case, you’ll need to contribute additional funds — but if you contribute more than the IRS annual limit ($7,000 in 2025), you may also incur penalties.

Step 6: Benefit from Potential Property Value Growth

Because your IRA owns your property, your IRA may also benefit from any growth. This means when you eventually sell your real estate, any potential gains will be deposited into your IRA where they may benefit from compound interest.

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Tax Implications of a Real Estate IRA

Unlike privately owned property, you won’t be eligible for tax deductions for property taxes, qualifying expenses or depreciation on your real estate IRA. You also will not be able to deduct mortgage interest.

Any contributions or withdrawals may still be either tax-deferred or can grow tax-free, depending on your IRA’s structure.

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How to Get Help With a Real Estate IRA

While using an IRA to purchase and manage property may be a more complicated investment move, this strategy provides another way to diversify your portfolio and potentially increase retirement savings.

However, this approach isn’t for everyone, and it’s important to carefully consider such a complex financial decision.

If you're unsure about using an IRA to purchase real estate, that’s where a fiduciary financial advisor can be invaluable.

Fiduciary financial advisors may be able to help you understand your options when it comes to planning for a real estate IRA and how it might fit into your overall financial plan. Additionally, any conflicts of interest must be disclosed, and fiduciaries are obligated to work in your best interest.

Finding a fiduciary shouldn't be that hard. Thankfully, now it isn't.

SmartAsset’s free matching quiz can match you with vetted fiduciary advisors who serve your area. From there, you can compare and decide which advisor to work with. All advisors on the matching platform have been vetted through our proprietary due diligence process.

The quiz takes just a few minutes, and in many cases, you can be connected instantly with an advisor to have an introductory call.

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This is a hypothetical example and is not representative of any specific security. Actual results when working with a financial advisor will vary.

This scenario is for illustrative purposes only and does not represent an actual client. Results may vary.

This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.

SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.

SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments.

We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.

Sources:
1. “The Value of a Financial Advisor: What’s It Really Worth?” SmartAsset (Nov. 2024)