November 8, 2023

Real Estate for Retirement Success: Your Guide to an Investment Property IRA

Written By: Daniel Gleich

Key Points 

  • An Investment Property IRA is another name for a Self-Directed IRA (SDIRA) (which allows you to use your retirement funds to invest in real estate with a tax-advantaged account).
  • Using an Investment Property IRA to purchase real estate can diversify your retirement portfolio, provide protection against economic fluctuations, and create the opportunity for steady returns.
  • Before investing your retirement funds into real estate, it's considered best practice to conduct due diligence, be mindful of prohibited transactions, and understand how to title and manage your IRA’s investment property.
  • Schedule a call today with a knowledgeable Madison Trust Specialist to get your self-directed real estate questions answered.
Investment Property IRA investor holding a miniature house with stacks of coins in front to display that you can invest in real estate with your retirement funds.

Did you know that one of the most popular assets among Self-Directed IRA investors is real estate? Those looking to buy real estate within a tax-advantaged retirement account may consider an Investment Property IRA. In this blog, we’ll explore how you can use an Investment Property IRA to help you build a robust and diversified retirement portfolio. 

What Is an Investment Property IRA?

An Investment Property IRA is another name for a Self-Directed IRA you can use to invest in real estate. Depending on when you’d like to receive tax benefits, you can open an Investment Property IRA as a Self-Directed Traditional IRA, Self-Directed Roth IRA, Self-Directed SEP IRA, or Self-Directed SIMPLE IRA. 

What Are Some Ways to Diversify Your Wealth into Real Estate with an Investment Property IRA?

Aerial view of real estate investment opportunities

You can invest in almost any type of property with your retirement funds. Here are a few exciting real estate opportunities you can invest in with an Investment Property IRA: 

  • Residential Property – including single or multi-family homes, apartment buildings, and condos. 
  • Commercial Property – including office buildings, storage spaces, factories, storefronts, and warehouses. 
  • Land – including raw land or undeveloped land. 

Benefits of Investing with an Investment Property IRA

You may be wondering, “Is real estate a good investment for retirement?” Depending on your property selection, real estate can be a potentially lucrative investment. Here are some benefits:

Icon of a pie chart with a percentage symbol, dollar sign on a coin, and bar graph to show a diversified investment portfolio.

Historically, real estate has been inversely correlated with standard stock market products. By adding real estate to your retirement portfolio, you can typically hedge against economic fluctuations and the volatility of the stock market.

Icon of an increasing trend graph to show that a real estate investment has the potential for steady returns.

If you have a rental property, you get to determine the rent price and receive relatively steady income each month you have tenants.

Icon of scissors cutting a sign that says tax to show that when you invest in real estate with a Self-Directed IRA you are receiving tax advantages.

When you invest in real estate with a SDIRA, your funds can grow tax-free (Self-Directed Roth IRA) or tax-deferred (Self-Directed Traditional IRA), depending upon your account type. 

How Does Investing in Real Estate with a Self-Directed Investment Property IRA Work?

Open a Self-Directed IRA with Madison Trust by completing our easy online application.

Fund your Self-Directed 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.

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

Another popular option to invest in real estate with your Investment Property IRA is by establishing a Checkbook IRA. This is beneficial for investors looking for more control of their funds. By adding either an LLC or a Trust and a checking account to your IRA, you gain checkbook control. This enables you to invest by simply writing a check or sending a wire from your Checkbook IRA’s dedicated checking account.  

Things To Know Before You Invest in Real Estate with Retirement Funds

When investing in real estate with an IRA, it’s important to be mindful of prohibited transactions. A few things Investment Property IRA account holders should know include:

  • You, nor a disqualified person, cannot stay, lease, or live in the property owned by your Investment Property IRA. 
  • You cannot use retirement funds to purchase a property you already personally own. 
  • You, nor a disqualified person, cannot complete property renovations or maintenance on your own. You must hire a contractor and pay with Investment Property IRA funds. 
  • You cannot receive compensation if you are the agent for the real estate investment. 
  • You cannot personally guarantee the repayment of a loan issued to the Investment Property IRA to buy the property.

The property purchased is owned by your Investment Property IRA, not you personally. The title is held in the name of your Investment Property IRA as follows, “Madison Trust Company FBO [Your First and Last Name] [Your MTC Account Number].

It is considered best practice to conduct proper due diligence before making an investment. You may research how factors such as location, average rental prices, and potential maintenance required may affect your return on investment.

Self-Directed Investment Property IRA investors in a meeting with miniature houses, stacks of papers, a calculator, and a phone on a table.

All rental income and expenses must flow to/from your Investment Property IRA.

Real estate investors speaking with a Self-Directed IRA Specialist.

Conclusion: Let's Tie It All Up

Real estate can be a potentially lucrative investment, especially when done in a tax-advantaged Investment Property IRA. Once you select a property and understand the self-directed investing rules, you can grow your retirement savings. 

Have Questions? We Have Answers!

Schedule a free discovery call with a Self-Directed IRA Specialist today to get the answers you need about investing in real estate with an Investment Property IRA.

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

Got Questions?

Speak with a Self-Directed IRA Specialist.
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