Using Self-Directed IRAs for Real Estate Investing: What Brokers Should Know

Retirement capital is becoming an increasingly important funding source in real estate. By the beginning of 2026, the value of U.S. retirement assets had grown to more than $39 trillion. As a result, more investors are now using Self-Directed IRAs (SDIRAs) to put portions of their funds into alternative assets like real estate.

These deals give brokers additional chances to make money, but they also come with their own set of standards for compliance, funding, and custody. Brokers can better advise clients and set up these deals when they have a good understanding of how to invest in real estate through a self-directed IRA.

What Is a Self-Directed IRA?

A Self-Directed IRA (SDIRA) is a type of retirement account that lets participants put their money into assets other than equities and bonds. Instead of using regular brokerage platforms, these accounts are managed by specialized custodians that let you invest in things like:

• Rental properties
• Commercial real estate
• Raw land
• Private placements
• Real estate partnerships

The underlying tax structure is still the same as it is for regular retirement funds. Investors have the choice of:

Traditional SDIRA

• Contributions may be tax-deductible
• Investment gains grow tax-deferred

Roth SDIRA

• Contributions are made after tax
• Qualified withdrawals are tax-free

This structure lets experienced investors diversify their portfolios over the long term and receive income through real estate while also still receiving the tax benefits from the account.

Why Investors Use SDIRAs for Real Estate

The main reasons people choose self-directed IRAs for real estate are that it gives them more control in how their funds are used, is better for taxes, and lets them invest in a wider range of assets to diversify their portfolio.

Access to Alternative Assets

Most standard IRA platforms don't let you own real estate directly. SDIRAs give investors access to real estate investments that they already understand.

Tax-Advantaged Growth

Rental income and property value growth stay within the IRA framework. Depending on the type of account, gains may grow at a tax-advantaged rate.

Portfolio Diversification

Real estate can protect you from shifts in the market. To balance out portfolios that are heavy in stocks, many investors put their retirement money into real estate.

As a result, more and more investors are employing a real estate investing strategy to develop long-term wealth, especially those who are already involved in rental housing or commercial assets and understand the asset class.

Understanding Self-Directed IRA Real Estate Rules

SDIRAs are flexible, but they have to follow tight IRS rules. Some important rules to know when using self-directed IRAs for real estate include:

No Personal Use

An SDIRA's properties must only be used as investments. Investors can't live in the property or let close family members live there.

No Sweat Equity

Account owners can't perform repairs, renovations, or property maintenance activities themselves. All services must be conducted through the account custodian and are paid for using IRA funds.

Expense Management

The IRA account must pay for all property costs directly. This includes:

• Property taxes
• Insurance
• Maintenance
• HOA fees

Maintaining sufficient liquidity inside the IRA is essential.

Arms-Length Transactions

All transactions must happen at fair market value with unrelated third parties.

Disqualified Persons

Certain individuals are prohibited from transacting with the IRA, including:

• The account owner
• Spouses
• Parents or children
• Entities controlled by the investor

Because of these rules, the IRA must operate as its own investing company instead of being an extension of personal ownership.

Financing Real Estate Inside an SDIRA

You may think that SDIRA real estate transactions have to be all cash. In reality, financing is possible, but terms vary largely depending on the loan provider.

Key financing considerations include:

• Loan underwriting is based primarily on the property
• The IRA custodian’s involvement in closing
• Potential exposure to Unrelated Business Income Tax (UBIT) when leverage is used

This framework gives brokers a guide to help their clients find lenders who understand retirement account transactions.

Broker Responsibilities in SDIRA Transactions

When brokers carry out SDIRA transactions, they may have to manage more regulatory and coordination issues than when they work on standard real estate sales. These can include:

Compliance Verification

Check that the property titles show IRA ownership instead of individual ownership. All purchase agreements, closing documents, and property records must clearly state that the IRA is the buyer/owner using the correct custodian-provided titling and wording.

Make sure that all funding goes through custodian accounts instead of personal accounts to avoid violations of commingling rules.

Education and Expectation Management

Teach clients about the regulations for prohibited transactions, focusing on the limits on personal use and expense management. Many investors don't realize how strict these rules are, which causes problems when they try to use property in ways that break the rules.

Explain how the transaction works on a day-to-day basis, such as how bills will be paid, what the custodian can and can't do, and what kind of returns they can expect. Setting realistic expectations keeps clients from becoming unhappy with the limitation of these transactions.

Professional Network Development

If you want to become an SDIRA pro, get to know the custodians, tax experts, and lawyers who work with these accounts. This professional network will help you give clients better advice and enable you to structure transactions that follow appropriate guidelines. Take matters into your own hands to get educated, and make yourself a knowledgeable resource that connects investors with the right specialists.

RCN Capital

Are you ready to offer more services to your clients, including SDIRA programs? Check out the RCN Capital broker program to see how working with an experienced direct lender can help you meet the needs of a wider range of investors and allow you to close more deals.