Could Real Estate Belong in Your Retirement Account? What to Know About Self-Directed IRAs

When most people think about retirement investing, they think about stocks, bonds, mutual funds, and other traditional investments. But there is another option that may be worth exploring: real estate held inside a self-directed IRA (SDIRA).

For people who understand real estate, enjoy researching investments, or simply want to diversify their retirement savings, a self-directed IRA can provide a way to invest retirement funds in certain alternative assets, including real estate.

What Is a Self-Directed IRA?

A self-directed IRA is a type of individual retirement account that allows investors to choose from a broader range of investments than those typically offered by traditional IRA providers.

Depending on the custodian, a self-directed IRA may allow investments in assets such as:

• Rental properties
  
  
• Residential or commercial real estate
  
  
• Vacant land
  
  
• Real estate notes
  
  
• Private lending and certain other alternative investments
  
  

The important difference is that the IRA owns the investment—not you personally.

That means you generally cannot use an IRA-owned property as your personal vacation home, live in it, or otherwise receive personal benefits from the investment. There are strict IRS rules governing these accounts, including prohibited-transaction rules.

Why Consider Real Estate for Retirement?

Real estate can offer a different type of investment exposure than stocks and bonds.

Depending on the investment, real estate may provide potential rental income, appreciation, interest income, or diversification.

For example, instead of using retirement funds only to purchase stocks, an investor might use a self-directed IRA to purchase an investment property. Rental income generated by that property would generally go back into the IRA rather than directly to the investor.

Over time, the goal is for the investment and its earnings to remain within the retirement account and potentially grow on a tax-advantaged basis.

A traditional IRA generally provides tax-deferred growth, while qualified distributions from a Roth IRA can potentially be tax-free. The specific tax treatment depends on the type of account and the circumstances.

You Don't Have to Own a Property

One of the most interesting aspects of real estate investing through an SDIRA is that direct property ownership isn't the only possibility.

Real estate notes can provide another way to participate in the real estate market.

A real estate note represents a debt secured by real property. In simple terms, an investor may lend money to someone purchasing or investing in real estate, with the property serving as collateral.

Instead of becoming the landlord, the IRA investor may earn interest from the loan.

According to IRAR Trust Company's report, “The Rise of Real Estate in Retirement Accounts: Self-Directed IRA Real Estate Investor Trends,” which analyzed 1,997 self-directed IRA real estate transactions in 2025, 56% involved real estate notes and 44% involved direct real property.

Among direct real estate purchases, 66% were single-family homes and 22% were vacant land. Among real estate notes, 57% of loans were in first position and 43% were in second position.

These figures illustrate that investors are using self-directed retirement accounts in different ways to gain exposure to real estate.

What Could This Look Like?

Imagine you have $200,000 in an IRA and want to explore real estate as part of your retirement strategy.

Rather than purchasing a property with your personal savings, you could investigate whether your IRA is eligible to purchase an investment property through an SDIRA custodian.

The IRA would own the property.

If the property produces rental income, that income generally belongs to the IRA. Expenses associated with the investment generally must also be paid from the IRA, subject to the applicable rules.

Another investor might prefer a real estate note instead of owning a rental property. In that situation, the IRA could potentially lend money secured by real estate and receive interest payments.

The right strategy depends on the investor's financial situation, risk tolerance, retirement goals, and understanding of real estate.

There Are Important Rules

Self-directed IRAs can provide more investment flexibility, but that flexibility comes with significant responsibility.

One of the most important things to understand is the IRS's prohibited-transaction rules.

For example, you generally cannot use an IRA-owned property for your personal benefit. You also cannot simply treat the IRA's investment as if it were your own personal property.

There are also rules regarding transactions involving certain family members and other disqualified persons.

Financing can create additional tax considerations as well. Certain investments involving debt may create tax issues such as unrelated business taxable income (UBTI) or unrelated debt-financed income (UDFI).

Because of these complexities, professional guidance is important.

Is a Self-Directed IRA Right for You?

An SDIRA isn't automatically better than a traditional retirement account.

Real estate can involve substantial risks, including:

• Market fluctuations
  
  
• Vacancies
  
  
• Unexpected repairs
  
  
• Property management issues
  
  
• Illiquidity
  
  
• Financing costs
  
  
• Transaction and custodial fees
  
  
• Changes in property values
  
  
• Tax considerations
  
  

Unlike a publicly traded stock, you generally cannot sell a property with the click of a button.

That's why it's important to consider your entire retirement portfolio rather than focusing on one investment.

Start With Education

If you're interested in learning more, start by understanding how self-directed IRAs work and what investments are permitted.

The IRAR Trust Company report, “The Rise of Real Estate in Retirement Accounts: Self-Directed IRA Real Estate Investor Trends,” provides an interesting look at how investors used self-directed IRAs for real estate transactions in 2025.

From there, consider speaking with a qualified financial professional, CPA, or attorney who understands self-directed retirement accounts before making an investment.

The Bottom Line

Real estate doesn't have to be an investment you make only with your personal savings.

For some investors, a self-directed IRA may provide an opportunity to incorporate real estate into their long-term retirement strategy while maintaining the potential tax advantages of an IRA.

The key is to understand the rules, carefully evaluate the investment, and make sure the strategy fits your overall financial and retirement goals.

Your retirement account is a long-term investment. Before moving money into real estate through an SDIRA, make sure you understand both the opportunity and the risks.