Picking the right investment account should be in line with all of your other financial goals. It shouldn’t be an aberration or a deviation from the norm of your life goals. If you plan on purchasing income-earning assets, then it should facilitate that. This helps keep your financial plans much simpler and reduces your stress of opening too many investment accounts. If you have a goal of owning a home or property through an investment account or simply want to make it liquid so you can use money each month or year from ti to supplement your income, you may have been looking into IRAs, more specifically, a self-directed IRA. Self-directed IRAs can be advantageous for those goals mentioned, but here are some things to consider first.

What Is a Self-Directed IRA?

First off, if you don’t know what a self-directed IRA is, that’s fine too. A self-directed IRA, or SDIRA, is a type of IRA that allows you to invest in assets or funds in a more flexible way than a traditional or Roth IRA. It has advantages in allowing you to purchase anything from real-estate to precious metals, to individual shares, mutual funds, private companies, and many more. It is useful for many investors because it has a lot of flexibility, but may also be risky because it’s self-directed.

What Limitations Does it Pose?

A self-directed IRA has limitations in various ways. You need a custodian (often brokerage firm, company, or bank) that controls the SDIRA to agree to allow the purchase of certain assets, which some may outright disallow from investing in through them. It is also harder to remove money from these types of IRAs, which can be an issue with real-estate at times. Similarly, you take on that risk of investing in assets knowing that you are on the hook if they lose value, meaning it’s your money you’re putting on the line.

How Does This Relate to Real Estate?

Still, an SDIRA can be a useful investment account for things like real estate. Purchasing a property with retirement funds through an SDIRA does come with some caveats, so it’s something that you’ll want to look out for. The issue is that buying a property with your SDIRA is an investment, so the home or rental property cannot be used by you as personal property. Any costs that have to go into it, like repairs or furnishings, must be done through the SDIRA. Similarly, the money earned from it must be put back into the SDIRA as well, not your personal accounts. Purchasing property in your name or someone you know is not allowed, but you can get a mortgage under the name of the SDIRA and invest in any property that follows those rules. 

What About Taking Money Out of the Self-Directed IRA?


It is possible to liquidate assets and take money out, but at a cost. This is the issue with an SDIRA and other forms of IRAs as well (with the exception of a Roth IRA), when you want to get your money, you’ll be paying income tax rates plus a penalty each time until you reach past the age of 59 ½ years old. After that age, your account is qualified and you can take it out at only income taxed rates. 

Choosing the Right IRA for Real Estate

There is no real “right” IRA for real estate ownership. Most of the IRAs you can invest in real estate or property through are going to present similar downsides or challenges, so the point is to be savvy with how you’re using your IRA account. Investing in real estate through an SDIRA is not a bad idea at all and is, in fact, a way that plenty of people have become wealthy when they figured out how to maintain the cash flow of their property into their investment account. The point of your account is to sit on the money for a long time as well, so it’s not something you want to be liquidated at a regular rate considering the penalties and taxed income.


When it comes to investing, an SDIRA is a good choice. You might not be able to take out your money as you please, or have total freedom to use the property you invest in as you please, but the purpose of this investing account is to use it as a long-term tool to establishing wealth.