Can My IRA Buy a Rental Property?
Yes. Your IRA can own an actual rental property, with an address and a tenant and a roof. Not a REIT, not a real estate fund. The property itself.
Four out of five of the clients we set up are buying a rental. So this is not an exotic corner of the tax code. It is the most common thing people do with a self directed retirement account.
What follows is how the structure works, how the money moves, what it costs in time, and the rules that decide whether it fits your situation. The rules are where people get hurt, so they get the most space.
The structure, in plain terms
Two entities, two jobs.
A licensed self directed custodian holds your IRA account. That part does not change and it should not. The custodian is the one with the regulatory obligation to hold retirement assets, and like your current IRA custodian, they are responsible for the recordkeeping and reporting of your IRA account to the IRS.
Your IRA then forms an LLC. The IRA owns the LLC. You are the manager of the LLC, which means you control what happens inside it.
That LLC opens its own bank account, and that account is where everything happens. The LLC makes the offer, and is the buyer in your purchase contract. The LLC goes on the deed. The LLC pays the deposit, the closing costs, and the inspections. Rent comes back into the same LLC checking account.
You sign as manager of the LLC, not as yourself. You never personally own the property. Your IRA does, through the entity it owns.
That arrangement is what people mean by checkbook control. Instead of sending a form to a custodian every time a bill arrives, you write the check.
What the money flow actually looks like
This is the part most explanations skip, and it is the part that matters on closing day.
- Your IRA sends money into the LLC's bank account.
- The LLC makes an offer. The buyer on the contract is the LLC.
- Earnest money, down payment, closing costs and repairs all come out of the LLC bank account.
- Rent is deposited into the LLC account. It stays inside the IRA's tax shelter.
- When you sell, the proceeds go back into the LLC account and remain under the IRA.
The rent does not come to you. You do not pay tax on it as it arrives. It compounds inside the account, which is the entire reason to do this rather than buying the property with after tax money.
One thing to plan for: leave a cash cushion in that account rather than deploying every available dollar into the purchase. It is the single most common planning mistake we see, and the next section explains why it matters so much.
The rules, which are mostly about who rather than what
The IRS is not especially concerned with what your IRA buys. It is concerned with who benefits, and when.
The rules center on disqualified persons. That means you, your spouse, your parents and grandparents, your children and grandchildren, and their spouses.
Your IRA cannot buy from, sell to, rent to, or pay any of them. In practice:
- You cannot live in the property, not even for a weekend.
- You cannot rent it to your daughter, even at full market rent.
- You cannot sell a property you already own into your own IRA.
- You cannot do the renovation work yourself, often called "sweat equity."
- You cannot pay a property bill from your personal account and reimburse yourself later.
Notice who is not on that list. Siblings, cousins, nieces, nephews, friends and most business partners are all fine. The rule runs up and down your direct family line, not sideways.
The one that catches people is the smallest one. Writing a personal check to cover a two hundred dollar repair feels like nothing. It is a prohibited transaction, and the consequences are severe with no simple correction path. That is why the cash cushion matters: every expense has to come from the account, so the account needs money in it.
Property managers are allowed and most of our clients use one. A third party manager is an ordinary vendor. The LLC hires them and pays them from the LLC account. What you cannot do is manage it yourself for a fee, or hire your spouse or children to do it.
Is this actually legal
It is, and it is not new. Two Tax Court cases define the space.
Swanson v. Commissioner (1996) established that an IRA can own a newly formed entity. A brand new LLC is not a disqualified person, so the IRA buying into it is not a prohibited transaction.
Ellis v. Commissioner (T.C. Memo 2013-245, affirmed by the Eighth Circuit in 2015) reaffirmed that, and drew the boundary in the same case. Mr. Ellis had his IRA owned LLC pay him a salary for managing it. That was self dealing.
One case says you can do this. The other says exactly where the line is. Together they are most of what separates a clean structure from an expensive mistake.
What it takes, in time
Most setups run two to four weeks from first conversation to funded and ready to make a purchase. About three weeks is typical.
The variable is almost never us. It is how fast your current custodian releases the funds. Some move in days. Some take weeks regardless of who is asking. Entity formation is the fast part: we submit your filing to the state within 48 hours, and the state typically returns the completed filing within 5 business days.
That is normal, not a best case.
Which leads to the practical advice that matters more than anything else here: start before you find the deal, not after. Showing a seller you are funds ready is a different conversation than telling them you need about a month. If you are already under contract, timing becomes the whole problem, and a few ordinary looking moves in the meantime can create issues that are easy to avoid today and expensive to unwind later.
Elizabeth R., who used her retirement funds to buy land, described the sequence in her review:
"We decided very quickly to purchase land using our retirement money which meant setting up a Self-Directed IRA, creating an LLC, opening the corresponding bank account, funding the IRA, transferring the money...you get the picture."
That is five distinct steps, each waiting on the one before it. Started early it is unremarkable. Started after a contract is signed it is a scramble.
Do you have to move your whole IRA
No. Move only what you intend to invest. The rest can stay exactly where it is, in whatever account it is in now.
That surprises people. There is no requirement to convert your entire retirement position to do one deal.
Most people bring over the balance they expect to need for the purchase, plus a cushion for maintenance. Depending on what you are acquiring, that cushion commonly runs somewhere between $10,000 and $100,000.
What it costs
The setup fee is a flat, one time cost. It is not a percentage of your account, there is no per transaction fee, and there is no annual fee to MyDirect IRA.
Separately, the custodian charges for the IRA account itself. That typically runs around $50 to open and about $300 a year.
The structure of that pricing matters more than the number over a long hold. Many custodians who hold real estate charge on a sliding scale tied to account value, which means the fee grows every year as the property appreciates. A flat setup fee does not.
When you might not want checkbook control
Not everyone needs it, and the honest version of this article says so.
You can hold real estate in a custodian directed self directed IRA with no LLC at all. The custodian signs the contracts and sends the funds, and you submit paperwork for each transaction. It is slower, and there are usually per transaction fees, but there is also less for you to get wrong because you are not the one signing checks.
If you have one asset you wish to acquire, say a single undeveloped lot, with no intention of developing it or transacting again after the purchase, then a checkbook IRA may not be the best fit. A custodian directed self directed IRA would likely do the job.
Checkbook control is worth it when you are writing offers with real timelines, paying vendors regularly, or you simply want full control over your retirement account funds. It trades administrative support for speed, and it puts the compliance responsibility on you.
Where this tends to fall apart
Three things, in the order we see them.
Starting too late. Covered above, and it is the most common by a distance.
No cash cushion. Every dollar goes into the purchase, then the water heater fails and there is nothing in the account to pay for it. Moving more money in from another retirement account is not an overnight process, so meanwhile you have tenants taking cold showers for at least a couple of weeks. And the obvious fix, writing a personal check, is exactly the move you cannot make.
Assuming the rules bend for small things. They do not scale with the size of the transgression. A small prohibited transaction is still a prohibited transaction.
None of these are hard to avoid. They are just hard to fix afterward, which is the argument for having someone build the structure who has done it before.
Working out whether it fits
If you are considering this, the two questions that determine everything else are how many accounts are funding the purchase and where you are buying. Those two answers set the structure, the timeline, and the cost.
A twenty minute call covers both. We have set up 400+ of these, and part of the job is telling people when it does not fit. If the rules would kill your plan, you will hear that rather than a sales pitch.
Ted Erickson is the founder of MyDirect IRA. He has spent 13+ years in the self-directed retirement account industry and has established 400+ checkbook IRA structures for clients in all 50 states. He is a licensed California real estate salesperson and mortgage loan originator.
This information is for educational purposes only and should not be considered tax, legal, or investment advice. Consult your own tax or legal advisor before making any investment or plan-structure decisions.
