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How do I set up a self directed IRA to invest in real estate?

I'm interested in setting up a self-directed IRA to invest in real estate for my husband and I. What should I consider when evaluating what company to use? What fees should I expect? How do I know if they are reputable?

IRAs, Real Estate
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January 2019

Investing in real estate with your IRA is a great way to diversify your investments, especially if you have background experience in real estate investing. As Peter Lynch famously said, "Invest in what you know."

There are many things you will need to consider when setting up and investing in real estate in your self directed IRA.

  1. First, you need to understand the rules. Most people think investing in mutual funds in their IRA is the same as investing in alternative investments. While the rules are the same, the process can be quite different. If you don't understand the rules, you can easily create a prohibited transaction which can cause you to pay penalties and taxes on your IRA. This can easily be avoided by either learning the rules or finding a wealth manager that specializes in this field. 
  2. Second, you will need to find a self-directed IRA custodian. This can be a challenge for most people. There are over 47 different custodians and administrators that specialize in self-directed IRA investing. So how do you choose? If you are going to do it yourself, then should be aware it will take some effort on your part to choose the right one. Each one is different. Each has their own fee schedule, assets they will accept, types of account they will open, customer service levels, etc. If you want to do it right, you will need to ask them a lot of hard questions. Here are some suggestions.
  3. Third, you will need to open and fund an account at this custodian. This will require that you either make a contribution or transfer IRA funds from another existing IRA to fund the account. (please note that IRAs require that your IRA assets be held at a custodian) Some advertisements tell you that you can buy gold and store it in your home... This is not allowed. You should also note that custodians cannot provide financial advice. They will all clearly state that, but for some reason, people take their responses to questions as advice. I have heard of a number of people getting themselves into trouble because they thought it was the custodian's job to provide them with advice. They are custodians, not broker-dealers. It is an important distinction. If you are unclear about this, then please seek the advice of a financial advisor.
  4. Fourth, you will need to complete the transaction. The custodian will work with you to do this. They will be the one signing for the real estate, you cannot do it. Ultimately the IRS will own the real estate, not you personally.
  5. Fifth, you will have ongoing maintenance of the asset (i.e. compliance, valuations, etc)

While this process can seem overwhelming, it is worth the extra effort if you have a good investment in mind. There are some notable people who have grown their IRAs quite large. Mitt Romney has an IRA worth over $100 million dollars. Peter Thiel and Max Levchin also have large IRAs. They created these large IRAs by using creativity and investing in what they know. You can do the same. 


I hope you found this helpful


Kirk Chisholm

Innovative Advisory Group

October 2017
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