SDIRA Real Estate Investing

A Self-Directed IRA (SDIRA) allows you to invest retirement funds in real estate — including rental properties, raw land, private lending, and syndications. Unlike standard IRAs that limit you to stocks and ETFs, an SDIRA gives you direct control over alternative assets.

How SDIRAs Work

A custodian (e.g., Equity Trust, Alto, Rocket Dollar) holds the account. You direct investments. The custodian holds title to the property on behalf of the IRA. All income and expenses flow through the IRA — not your personal accounts.

Types of Self-Directed Accounts

• SDIRA (Traditional): Tax-deferred growth. Contributions may be deductible. Distributions taxed as ordinary income.
• Roth SDIRA: After-tax contributions. Tax-free growth. Tax-free distributions in retirement. Best for real estate if you expect high appreciation.
• Solo 401(k): For self-employed. Higher contribution limits ($69,000 + $7,500 catch-up for 2026). Can make loans to yourself. Better than SDIRA in many cases due to loan feature.
• HSA (Health Savings Account): Triple-tax-advantaged. Can invest in real estate (though typically not recommended due to medical expense focus).

Checkbook Control (LLC Structure)

With a "checkbook control" SDIRA, you form an LLC owned by your IRA. The LLC has a bank account that you control. When you find an investment, you direct the LLC to purchase it. This gives you faster execution and lower fees than going through the custodian for every transaction.

Investment Options

• Rental Properties: Single-family, multifamily, commercial. Income flows back to the IRA tax-deferred (Traditional) or tax-free (Roth).
• Private Lending: Your IRA lends money to a borrower (secured by real estate). Interest income flows to the IRA.
• Syndications: Invest as a limited partner in larger commercial deals.
• Crowdfunding: Fundrise, CrowdStreet — but check if they accept SDIRA investors.
• Raw Land: Buy and hold for appreciation.
• Tax Liens / Tax Deeds: Purchase tax lien certificates in the IRA's name.

Prohibited Transactions (Critical!)

The IRS strictly prohibits: self-dealing (you, your spouse, your children, your parents, or any entity you own cannot use or benefit from the IRA's property). You cannot:

• Stay in the rental property (even one night)
• Have your kids live there
• Do work on the property yourself (sweat equity is prohibited)
• Buy property from yourself or a family member
• Use the property as a vacation home
• Lend IRA money to yourself or family
• Personally guarantee an IRA loan (this may violate rules — consult a pro)

Violating prohibited transaction rules results in the IRA being deemed distributed to you — immediate tax on the full value plus penalties.

UBIT / UDFI Tax

If the IRA uses debt financing (mortgage) to buy property, the portion of income attributable to the debt is subject to Unrelated Business Income Tax (UBIT) — also called Unrelated Debt-Financed Income (UDFI). Rates: trust tax rates (up to 37%). File Form 990-T. Planning: some investors use a "IRA/LLC structure with partner equity" or buy properties debt-free to avoid UBIT.

Pros & Cons

• Pros: Tax-free/deferred growth, diversification, leverage (subject to UBIT), checkbook control, access to deals you understand.
• Cons: Complexity, custodian fees ($50-500/year + transaction fees), UBIT on leveraged properties, prohibited transaction pitfalls, appraisal requirements, illiquidity.

SDIRA Custodians

• Equity Trust: Largest SDIRA custodian. Wide asset acceptance. Slow transaction processing.
• Alto IRA: Modern platform. Good for alternative assets including crypto and real estate crowdfunding.
• Rocket Dollar: Checkbook control focused. Solo 401(k) specialist.
• Advanta IRA: Good for real estate investors. Partnership with various real estate platforms.
• IRA Financial: Checkbook control. Has had some regulatory issues — verify current status.