Common Financing Questions Investors Have About Self-Directed IRAs

Stocks, bonds, and mutual funds are no longer the only options in a retirement account. There’s been increasing number of investors diversifying their portfolios with Self-Directed IRA’s (SDIRA’s) use them to purchase homes and get involved in real estate related investments.

The market continues to support that shift. Investment Company Institute (ICI) data show that U.S. IRA assets totaled approximately $19.2 trillion at the end of 2025, and total U.S. retirement assets exceeded $39 trillion at the beginning of 2026. That’s a lot of potential capital that’s waiting to be tapped into.

The brokers and lending partners who understand self-directed IRA transactions, along with how account owners can finance these purchases, will be better positioned to take advantage of this shift and close more specialized deals as more retirement capital flows into alternative investments.

What Is a Self-Directed IRA and Why Do Investors Use It for Real Estate?

A Self-Directed IRA is a program that allows retirement account owners to invest in alternative assets – real estate, private placements, precious metals, private lending – instead of restricting the account to stocks, bonds and mutual funds. The IRS allows this structure, but most account owners don't even know these programs exist since they can be more complicated and have stricter regulations than investing in conventional assets.

The underlying tax structure mirrors traditional retirement accounts:

• Traditional IRA: Contributions may be tax-deductible. Investment gains grow tax-deferred until distributions begin.
• Roth IRA: Contributions are made with after-tax dollars. Qualified distributions — including all rental income and appreciation — are tax-free.

An SDIRA is an investment tool for retirement account owners to stay involved in assets they already know, but still receive the tax benefits of a retirement account.

Common Financing Questions About Self-Directed IRAs

Can an SDIRA use financing to buy a property, or does it have to be all cash?

With a self-directed IRA, you can finance real estate, but you should know that the loans come in both recourse & non-recourse varieties. Because the only collateral for the lender is the property itself, and under IRS rules, the account owner is prohibited from personally guaranteeing the loan in the event of default.

This means many lenders will offer “Limited Recourse” options, where the guaranty only applies in the event of specific, fraudulent acts. For non-recourse financing, lenders will generally demand larger down payments, or in other words, the programs will have lower LTV caps.

How does underwriting work?

Underwriting for the financing of real estate in a self-directed IRA is based on the financial strength of the investment property and not on the investor’s personal income.

Lenders typically evaluate:

• Property value
• Rental income
• Debt Service Coverage Ratio (DSCR), when applicable
• Property condition
• Available IRA funds for the required investment

Usually, personal income and debt-to-income ratios play a much smaller role, because the loan can’t depend on a personal guarantee.

What is UBIT and when does it apply to leveraged SDIRA transactions?

If an SDIRA borrows funds to purchase real estate, a portion of the income generated from the borrowed funds may be subject to Unrelated Business Income Tax (UBIT) under the Unrelated Debt-Financed Income (UDFI) rules.

There is nothing wrong with leverage, but investors should be aware of potential tax implications before closing. If financing is involved, brokers should recommend that clients consult a qualified tax professional.

What are prohibited transactions and who are disqualified persons?

An SDIRA must act as a self-directed investment entity. Disqualified persons include the account owner, spouses, children, relatives, or entities controlled by any of the above. The investment cannot involve with disqualified persons. More specifically:

• The property cannot be personally used by the account owner or any disqualified person
• The owner cannot perform repairs or manage the property personally and receive payment from the IRA
• The IRA cannot purchase a property from or sell a property to a disqualified person

Breaking these rules can threaten the tax-advantaged status of the account, so brokers need to educate clients on these regulations before the transaction begins.

How the Financing Process Works for SDIRA Real Estate Deals

Key differences brokers should understand:

• The IRA is the buyer. The custodian requires titling to show the IRA as the purchaser, so the purchase agreements, closing documents, and titles to the property must show the IRA as the purchaser.
• All funds flow through the custodian. You must pay the property expenses, such as taxes, insurance, maintenance and repairs, from the IRA account, not from the investor’s own personal funds. It is necessary to have sufficient liquidity in the account.
• The custodian facilitates the transaction. As the custodian reviews and processes transaction documents, brokers will have to factor in additional processing time when scheduling closings.
• Income flows back into the IRA. All rental income, sale proceeds, and investment returns go directly into the SDIRA account. The investor does not directly receive income from the property while it is held in the IRA.

What Brokers Should Know Before Working on These Deals

Brokers can help keep SDIRA transactions on track by focusing on these key areas:

• Confirm custodian involvement early. Determine which SDIRA custodian the client uses and verify the average processing time. Not every custodian operates in the same way, and you need to establish timeline expectations with them before you put a deal under contract.
• Verify titling requirements before closing. The lender, title company, and custodian must settle on how the property will be titled, which is typically in the name of the IRA account.
• Understand the non-recourse lending environment. Not all lenders provide non-recourse loans. Brokers who understand SDIRA transactions are in a better position to navigate the specifics and get these deals done.
• Educate clients on expense management. First-time SDIRA investors don't often realize that the costs of maintaining property – repairs, taxes, insurance – must all be paid with IRA funds. If the account lacks liquidity, it creates operational problems in the middle of ownership.
• Build your professional network. SDIRA custodians, tax professionals experienced with UBIT, and real estate attorneys who understand SDIRA transactions. Brokers can offer additional value to clients by making these introductions that help ensure a successful deal.

RCN Capital helps brokers finance a wide range of investment property transactions, including eligible purchases through an SDIRA. Discover the RCN Capital Broker Program and see how the right lending partner can help you close more investor deals with confidence.

Frequently Asked Questions

Q: Can a self-directed IRA use financing to purchase an investment property?
A: Yes. SDIRAs may utilize non-recourse loans to acquire real estate. The key thing to remember is the loan has to be non-recourse, meaning the lender can look only to the property for collateral, not the account owner’s personal assets.

Q: What is a prohibited transaction in the context of SDIRA real estate investing?
A: A prohibited transaction is when an SDIRA engages in a transaction with a “disqualified person,” which includes the account owner, their spouse, parents, children, and any entity they control.

Q: What is UBIT and how does it affect SDIRA real estate investments?
A: When an SDIRA uses debt financing to buy a property, income from borrowed funds may be subject to Unrelated Business Income Tax (UBIT) — specifically UDFI (Unrelated Debt-Financed Income).

Q: What titling is required when an SDIRA purchases investment property?
A: The property must be titled in the name of the IRA—not in the name of the individual investor. The custodian will provide you with the exact language for the title, which typically appears as follows: “Custodian Name FBO [Investor Name] IRA [Account Number]”.

Q: Can an SDIRA investor manage the property or perform repairs themselves?
A: No. The account owner and any disqualified person may not provide services for the IRA-owned property or receive compensation from the account. All property services must be done through third parties and paid for with IRA money.