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Many people assume their retirement accounts are limited to stocks, mutual funds, and publicly traded investments. But what if your retirement savings could hold real estate as well?
For many investors, real estate is one of the most familiar asset classes. People understand properties, rental income, and local markets because they see these things in their everyday lives.
A Self-Directed IRA allows retirement account holders to hold certain real estate-related assets inside the same tax-advantaged structure as a Traditional or Roth IRA.
Understanding how this works is an important step toward making informed decisions about retirement planning.
In this article, we will explore seven real estate options that may be held within a Self-Directed IRA and review the key rules that apply when real estate is part of a retirement account.
As always, this content is strictly educational. Mountain West IRA does not provide financial, legal, or tax advice and does not recommend specific investments. Account holders should consult with qualified advisors when evaluating opportunities.
A Self-Directed IRA is an IRS-recognized retirement account structure that allows account holders to hold a broader range of assets than conventional brokerage IRAs.
Traditional and Roth IRAs held at brokerage firms generally limit investment options to publicly traded securities such as stocks, bonds, and mutual funds. A Self-Directed IRA expands those options to include alternative assets such as:
The key difference is decision-making authority. In a self-directed account, the account holder directs what assets the IRA will hold, while the custodian handles administrative responsibilities such as processing transactions, maintaining records, and completing required IRS reporting.
Mountain West IRA serves in this administrative role. We do not evaluate investments or provide recommendations. The account holder remains responsible for due diligence and investment decisions.
Real estate is one of the most widely understood alternative asset categories. Many people already have experience with property ownership, rental markets, or real estate financing.
Within a Self-Directed IRA, real estate may function differently than personal investments because the IRA itself owns the asset. All income generated by the property must flow into the IRA, and all expenses related to the property must be paid from IRA funds.
The account holder does not personally own the property. The IRA owns the property for the benefit of the retirement account.
With that structure in mind, let’s look at seven real estate options that may be held inside a Self-Directed IRA.
Option 1: Residential Rental Properties
Residential real estate is one of the most common assets held in Self-Directed IRAs. This category includes:
In this structure, the IRA purchases the property and becomes the legal owner. Rental income is deposited directly into the IRA, and expenses such as maintenance, property taxes, insurance, and property management must be paid by the IRA.
There are strict compliance rules that apply. The property cannot be used personally by the account holder or by disqualified persons such as a spouse, parents, or children. The property must exist solely for the benefit of the retirement account.
Option 2: Commercial Real Estate
Self-Directed IRAs can also hold commercial real estate. This may include:
Commercial properties often operate under longer lease agreements and may have different operational structures compared to residential properties.
A Self-Directed IRA may own commercial real estate outright or participate in ownership through partnership structures. Regardless of the ownership structure, all income and expenses must flow through the IRA account.
Proper documentation and recordkeeping are essential to maintain compliance.
Option 3: Raw Land and Undeveloped Property
Another option available within a Self-Directed IRA is raw land.
Raw land generally involves fewer operational responsibilities than income-producing property. In many cases, the IRA purchases the land and simply holds it as an asset within the retirement account.
Some investors also explore land that is being prepared for future development. If development occurs, all costs associated with development must be paid directly from IRA funds.
As with all real estate inside a retirement account, the land cannot be used personally by the account holder.
Option 4: Real Estate Notes and Mortgage Notes
Real estate exposure inside a Self-Directed IRA does not always require direct property ownership.
Another structure involves real estate notes or mortgage notes. In this scenario, the IRA acts as the lender in a real estate transaction.
The IRA holds the promissory note, which is secured by real property. The borrower makes scheduled payments that include principal and interest. Those payments are deposited directly into the IRA.
Real estate notes can take many forms, including:
Each structure involves its own documentation and due diligence considerations.
Option 5: Private Real Estate Investment Trusts (Private REITs)
Private Real Estate Investment Trusts, commonly known as private REITs, represent another real estate related structure that can be held in a Self-Directed IRA.
Unlike publicly traded REITs that are available through brokerage accounts, private REITs are not listed on public exchanges. Instead, they are private placement structures that pool capital to invest in real estate portfolios.
A Self-Directed IRA may hold shares in a private REIT, providing exposure to multiple properties managed by the REIT operators.
As with any private placement, account holders are responsible for conducting their own due diligence before directing their IRA to participate.
Option 6: Tax Lien Certificates
Tax lien certificates are issued by local governments when property owners fall behind on property taxes.
When taxes remain unpaid, the municipality may issue a certificate representing the delinquent tax obligation. Investors can purchase these certificates, and the certificate earns a statutory rate determined by the issuing jurisdiction until the property owner redeems the lien.
Tax lien rules vary significantly by state and county, including redemption periods and foreclosure procedures. Anyone exploring this area should understand the local legal framework and the processes involved.
Option 7: Tenants in Common (TIC) Arrangements
Tenants in Common arrangements allow multiple parties to hold fractional ownership interests in the same real estate property.
Within a Self-Directed IRA, the account may purchase an undivided ownership interest alongside other investors. Each owner holds a percentage of the property and participates proportionally in income and expenses.
TIC structures are often used when multiple parties want to participate in a larger property that might be difficult for a single investor to acquire alone.
These arrangements require careful legal documentation and coordination between all participating owners.
Regardless of the type of real estate asset involved, several core IRS rules apply to all Self-Directed IRAs.
No personal use
Neither the account holder nor disqualified persons may use the property for personal benefit.
All income goes to the IRA
Rental income, interest payments, or any other proceeds must be deposited directly into the IRA.
All expenses are paid by the IRA
Property taxes, repairs, insurance, and management fees must be paid using IRA funds.
No self-dealing
Transactions between the IRA and disqualified persons are prohibited.
Debt financing considerations
If an IRA uses financing to acquire property, the loan must typically be structured as a non-recourse loan. In certain cases, the use of debt may create Unrelated Debt-Financed Income (UDFI). A tax professional should be consulted to understand how these rules apply.
Mountain West IRA serves as a self-directed IRA custodian.
Our role is administrative. We process transactions, maintain account records, and complete required IRS reporting for self-directed retirement accounts.
We do not evaluate assets, provide investment advice, or recommend specific opportunities. The account holder directs all investment decisions and is responsible for conducting due diligence and consulting with qualified professionals.
Self-Directed IRAs open the door to a much wider range of assets than many investors realize. Real estate represents one of the most commonly explored categories because of the variety of structures available.
Residential properties, commercial real estate, raw land, mortgage notes, private REITs, tax lien certificates, and tenants in common arrangements all represent different ways real estate exposure may appear inside a retirement account.
Understanding the structure of the account, the compliance rules involved, and the administrative role of the custodian is essential before pursuing any alternative asset strategy.
If you would like to learn more about how Self-Directed IRAs work, we invite you to watch our full educational video on this topic on the Mountain West IRA YouTube channel.
If you have questions about opening a self-directed account or how the administrative process works, the Mountain West IRA team is here to help.
Mountain West IRA can help you open a Self-Directed IRA or Solo 401(k), so you can invest in what you know best.
📞 Call us at 866-377-3311 or
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This post is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor for personalized advice.
Mountain West IRA, Inc. does not render tax, legal, accounting, investment, or other professional advice. If accounting, tax, legal, investment, or other similar expert assistance is required, the services of a competent professional should be sought.
Meet with our team to explore your personalized journey of building wealth through investing in real estate, promissory notes, precious metals, and other assets using your retirement fund.
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