Supercharge Your Retirement Investing with a Self-Directed Real Estate IRA

What Is a Self-Directed Real Estate IRA?

A Self-Directed Real Estate IRA is a supercharged IRA that enables you to invest your retirement money directly into real estate such as multi-family, commercial, raw land, fix-and-flips, tax liens, and more. It has the same tax benefits as a standard IRA and can be set up as Self-Directed Traditional IRA, Self-Directed Roth IRA, Self-Directed SIMPLE IRA, or Self-Directed SEP IRA.

If you’re looking to invest in real estate with a Self-Directed Real Estate IRA, you’re in the right place! We can help you learn:

          • What benefits does a Real Estate IRA offer?
          • What types of properties can I invest in with a Real Estate IRA?
          • What are the Real Estate IRA rules?
          • How to buy real estate with a Self-Directed Real Estate IRA?

Real Estate IRAs at a Glance

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Invest in a Variety of Properties

A Real Estate IRA is another name for a Self-Directed IRA that’s used to invest in real estate. This includes multi-family, commercial, fix-and-flips, residential, raw land, tax liens, crowdfunding opportunities, and more.

Hand holding a bag of money to show that you can receive generally stable returns when you invest in real estate with a Real Estate IRA.

Receive Generally Stable Returns

Some benefits of investing in real estate with retirement funds include high growth potential, generally stable returns, and retirement portfolio diversification.

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Understand the Rules

Self-directed real estate investors must follow rules regarding titling, handling income and expenses, financing, and paying applicable taxes.

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Simple Set Up

Madison Trust has a simple, three-step set up process to invest in real estate with a Self-Directed IRA: open an account, fund your account, and place your investment.

Why Hold Real Estate in a SDIRA: The Benefits

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High Growth Potential

Real estate typically appreciates in value over time. When you decide to sell or distribute your property, you would likely be selling it at a higher rate than when you purchased it, allowing you to enjoy capital gains.
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Tangible Asset

Real estate is a tangible asset, therefore it typically never reaches a zero-dollar value.

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Tax Advantages

When you invest in real estate with an SDIRA, your funds can grow tax-free (Self-Directed Roth IRA) or tax-deferred (Self-Directed Traditional IRA), depending on your account type.
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Potential for Steady Returns

Real estate provides investors with the valuable opportunity to typically receive steadier, more predictable account growth through rental income. In addition, real estate generally retains its value and does not tend to fluctuate as much as stock prices.
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Portfolio Diversification

Historically, real estate has been inversely correlated with standard stock market products. Adding real estate to your retirement portfolio can typically help hedge against both economic fluctuations and stock market volatility.

You Have Questions? We Have Answers!

Are you interested in learning more about the benefits of investing with a Real Estate IRA? Madison Trust Specialists are ready to answer any questions you may have.
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What Types of Properties Can I Invest in with a Real Estate IRA?

A Self-Directed IRA can legally invest in almost any asset. The only assets that are off-limits are collectibles, life insurance, 
and S-Corporation stock. Some of the more popular real estate investments include:

Icon of a tall building to signify investing in real estate with a Self-Directed IRA.
Real Estate

(Office Buildings, Storage Spaces, Factories, Storefronts, Warehouses, etc.)
Raw land investment
Raw Land
(Farmland, Undeveloped or Developed Land)
Icon of a house to signify a real estate investment.
Residential Properties
(Rental Properties, Single-Family, Multi-Family, Condos, Apartment Buildings, Fix-and-Flips, Mobile Homes, etc.)
And Many More Alternative Assets

Real Estate IRA Rules

Titling Your Investment Property

When your IRA purchases real estate, the title is held in the name of the custodian for the benefit of your IRA: “Madison Trust Company Custodian FBO [Your Name] [Your Madison Trust Account Number]. If you have a Checkbook IRA, the title is held in the name of your LLC or trust.

Income and Expenses

All income and expenses related to your real estate investment must flow to/from your Self-Directed Real Estate IRA. Income and expenses related to your IRA-owned property are handled by your IRA custodian, not by you as the account holder.

For example, account holders instruct Madison Trust to pay bills, such as property taxes and insurance, via an Expense Payment Request. Account holders deposit real estate income, such as rental payments, directly into their Real Estate IRA by submitting a Deposit Information Form. As another option, an account holder can hire a management company to handle the property's income and expenses.

Financing with a Non-Recourse Loan

You can obtain financing for an IRA investment; however, you must structure the loan as a non-recourse loan. This means that the loan is backed exclusively by property, not by your personal guarantee (as the IRA holder). The lender’s sole recourse in the case of default is the property.

You cannot personally guarantee a loan issued to your IRA. Doing so would benefit the IRA and constitute a prohibited transaction. Additionally, the loan must be issued by a non-disqualified entity.

Investment Structure

Although many investors choose to own real estate directly through their IRA, others choose to invest with real estate companies such as LLCs or real estate funds. In such cases, the IRA takes an ownership interest as an entity, rather than in a real property. For more information, visit our page about investing IRA funds in a private placement.

UBIT (Unrelated Business Income Tax)

Unrelated Business Income Tax applies when a tax-advantaged entity such as an IRA earns “ordinary” income. In real estate, this can take the form of income from multiple short-term property flips. Passive investments, such as rental income, interest income, and dividend income do not incur this tax. It is best to reach out to an accountant or tax administrator before placing an “active” real estate investment to learn whether the tax may apply.

Another tax that may apply is Unrelated Debt Financed Income. When an IRA procures a loan for an investment, then the earnings from the financed portion are subject to UDFI.

When either UBIT or UDFI are due, it is the account holder’s responsibility to prepare Form 990-T. The form then is signed by Madison Trust in its capacity as IRA custodian, and then filed with the IRS by the account holder.

Prohibited Transactions

An IRA may transact with third parties but may not transact with close family members or closely held entities, known as disqualified persons. In essence, IRS Self-Directed IRA prohibited transactions do not limit WHAT an IRA can invest in, but rather WHO an IRA can transact with.

In addition, when you invest with a Self-Directed Real Estate IRA, only your IRA benefits from the investment, not you or another disqualified person. The following are considered disqualified persons to your IRA:

          • You (the Self-Directed Real Estate IRA account holder)
          • Parents
          • Grandparents
          • Spouse
          • Children
          • Children’s Spouses
          • Grandchildren
          • Grandchildren’s Spouses
          • The fiduciary of the Self-Directed IRA and anyone else that provides services to the account (e.g.,                            accountant or financial advisor).
          • An entity (e.g., corporation, partnership, LLC) that is owned 50% or more, singularly or collectively by                      disqualified persons.
          • All officers, directors, highly compensated employees, and other owners of a disqualified entity.

These disqualified persons are not allowed to partake in the following:

          • Live on, rent, or use the investment property
          • Lease the property to any business you or they owe 50% or more of
          • Personally conduct repairs on the property
          • Hire a business you or they own 50% or more of to perform any repairs

For more details, visit Prohibited Transactions.
Do you have questions about the Real Estate IRA rules?
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How Real Estate IRAs Work

Madison Trust makes it easy to purchase property with retirement funds by having a streamlined real estate investment process. Typically, investors come to Madison Trust with all - or a portion of - their retirement funds and an investment in mind. Then, Madison Trust acts as the bridge connecting your retirement funds to the investment of your choice.

Refer to our How To Purchase Real Estate with Your IRA flowchart for more information, including the process for the earnest money and closing instructions.
Download Free Real Estate Investing Flowchart

How To Use a Self-Directed IRA for Real Estate

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Open a Self Directed Real Estate IRA

Open a Self-Directed Real Estate IRA with Madison Trust by completing our easy 
online application.
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Fund Your Account

Fund your Self-Directed Real Estate IRA by transferring or rolling over all – or a portion of – your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.
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Invest in the Property of Your Choice

Instruct Madison Trust to send your funds by writing a check or sending a wire directly to your chosen real estate investment.

Are You Ready to Get Started on Your Self-Directed Real Estate IRA Investing Journey?

Take the first step today and speak with a knowledgeable Self-Directed Real Estate IRA Specialist.
Take the First Step

Why Investors Choose Madison Trust 
for their Real Estate IRA

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Incredible Client Support

Madison Trust seeks to give retirement investors an amazing experience. The first step in that experience is unparalleled customer service. You will always be able to speak to a live and knowledgeable representative.

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Self-Directed Real Estate IRA Expertise

Madison Trust has been a regulated trust company and industry leader since 2014. Together with our sister company, Broad Financial, we have 20,000+ clients across all 50 states and thousands of 5-star reviews.

Low Fees

Amongst the lowest in the industry, Madison Trust's flat-rate fees help ensure the profitability of your investments. We also allow you to skip the asset-based holding fees and manage as you see fit.

Ready to Build Wealth with a Real Estate IRA?

Schedule a free discovery call to speak with one of our friendly and knowledgeable 
Real Estate IRA Specialists.

Schedule a FREE Discovery Call

Our Story

Madison Trust is an industry-leading Self-Directed IRA custodian with a passion for empowering individuals to gain control of their retirement investing. Learn more about our story from our President & CEO, Daniel Gleich.

Ready to Get Started? We're Here for You!

Madison Trust’s knowledgeable and friendly Self-Directed IRA Specialists are here to answer your questions. We can provide you with step-by-step guidance from account setup all the way to placing your investment.
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It’s time to start investing in what you know and believe in with a 
Madison Trust Self-Directed Real Estate IRA.
I'm Ready to Get Started

Real Estate IRA – FAQs

Can Real Estate be Held in an IRA?

Yes! A Self-Directed Real Estate IRA lets you own alternative assets in your retirement account. Real estate is one of the most popular investments. To invest in real estate with retirement funds, you must open an account at a Self-Directed IRA custodian.

How Can I Set Up a Self-Directed Real Estate IRA?

To invest in real estate with retirement funds, start by opening a Self-Directed Real Estate IRA (SDIRA) at a qualified custodian. When your SDIRA has been established, you can fund your account through a transfer, rollover, or contribution. Then, you will instruct the Self-Directed IRA custodian to invest in the property of your choice on behalf of your IRA.

Can You Finance Real Estate with a Self-Directed IRA?

IRA funds are generally used to purchase a property. However, you may obtain financing to invest in real estate. If you are financing your investment, please keep in mind a few things:

          • A disqualified person cannot issue the loan, as that would constitute a prohibited transaction.

          • The loan must be non-recourse so that the loan is backed by the property and not the borrower                                personally. One cannot personally guarantee a loan issued to their IRA, since that would constitute a                        prohibited transaction.

           • The earnings attributable to the leveraged portion are subject to UDFI and the filing of Form 990-T is                         required.

Can I Live in a Home which I Purchase with my IRA Funds?

No. All investments made by your IRA are to benefit your IRA exclusively, not yourself personally. Living in a home owned by your IRA violates IRS rules and would constitute a prohibited transaction. You can use a Self-Directed IRA to buy a house, but you cannot live in it, and neither can certain family members.

Can a Roth IRA Own Real Estate?

Yes! With a Self-Directed Real Estate IRA, you can invest in a variety of alternative assets, including real estate. You can open a Self-Directed Real Estate IRA as either a Self-Directed Traditional IRA or a Self-Directed Roth IRA.

Can I Invest in Real Estate with an IRA LLC?

You may consider upgrading your Self-Directed Real Estate IRA with checkbook control. This includes the creation of an IRA LLC, often referred to as a Checkbook IRA. An IRA LLC gives you more flexibility and control of your Self-Directed Real Estate IRA.

With a Real Estate IRA LLC, you can manage everyday transactions in real time without going through your Self-Directed IRA custodian. This way, you can make investment decisions quickly and efficiently.

How Do I Pay for Real Estate Investment Expenses? How Do i Deposit Rental Income into my Self-Directed IRA?

All income and expenses associated with your investment must flow in and out of your Self-Directed Real Estate IRA.

Instruct Madison Trust to pay expenses by completing an Expense Payment Request Form and attach a bill or invoice to ensure the payment is delivered to the appropriate address.

To deposit income into your Self-Directed Real Estate IRA, complete a Deposit Information Form. This form notifies Madison Trust of the incoming funds.

As another option, an SDIRA can hire a company to manage the property, pay expenses, and receive property income.

How Should I Title my IRA-Owned Property?

Your Self-Directed IRA is the owner of the investment property. Therefore, the title is as follows: “Madison Trust Company Custodian FBO [Your Name] [Your Madison Trust Account Number]”.

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