How to Choose the Best Market for Your Real Estate Investment
Investment real estate is one of the best options for a self-directed IRA. The principal of the retirement plan is secured by a real asset with the potential to generate consistent monthly cash flow. If things work out and the property appreciates at a rate better than inflation, then all the better. If you play the game properly, you can acquire a nice pool of solid assets that throw off regular income. You can use this income to acquire new properties and grow your portfolio if you are younger, or take distributions in retirement without having to reduce the core invested principal in doing so.
Successful real estate investments rely on several factors, but as the old adage goes, “location, location, location” is tops on the list. But “location” is a broad term, and evaluating the right place to invest your IRA dollars in real estate means identifying the right market in both the macro and micro senses. Some cities simply provide better opportunities than others based on factors like the relative cost of housing to average incomes, availability of good jobs, and demographic trends. Within each metro area, however, there are many local real estate markets, and at that level factors like the quality of schools, neighborhood safety, access to amenities like parks, shopping and entertainment and a host of other variables come into play.
Choosing the right markets for your investing needs involves several considerations, some of which go beyond just the property & neighborhood itself. Following are some guidelines to help you ask the right questions as you determine where to invest.
Start with your Goals
Are you investing for the long term or trying to achieve a shorter-term boost in value for your IRA or 401k plan? Various markets throughout the country will produce more consistent cash flow per dollar invested, but the properties may not appreciate much. Other regions will exhibit strong trends for appreciation in value, but may not cash flow well due to the high costs or properties relative to rental rates. Investing for cash flow tends to be somewhat more reliable and predictable, while investing for appreciation tends to be more speculative in nature. Where you are at in your retirement savings path and how your retirement plan fits into your overall wealth portfolio, as well as things like risk tolerance and amount of available capital will all help shape this decision.
Investing Locally vs in Remote Markets
Many investors want to be able to see their investments or rely on their own expertise and local network to manage properties. This is great if your market and your investment goals match up, but that is not always the case. If you live in a high cost city like San Jose or Washington, DC, the real estate market can produce some very positive opportunities, but only if you have significant capital to work with. One option is to participate in partnership with multiple investors to acquire properties, but that comes with its own set of challenges. In many cases, it may be better to evaluate other markets that fit your goals more cleanly.
If you do choose to look beyond your local market, it can be helpful to consider cities where you have connections or may have lived in the past, but that should not be a deciding factor. An economic analysis of a market is much more important than feel good reasons like “My cousin Mike lives there and could keep an eye on things”.
Top Down Analysis
When evaluating a region or city to invest in, start at the big picture level to determine the right geography for your needs, and then drill down to the neighborhood level.
When looking at a metro region, there are a wealth of statistics available to help you determine the overall viability of that market. Following are several categories of data to look into:
Economic factors
- How many people live there? Is the area large enough to provide a diverse rental population?
- Is the population expanding or contracting? Cities experiencing growth are a good thing. A declining population is generally a sign of economic decline and may bode poorly for your investment prospects.
- Is the economy diverse? A one company or one industry market can take a big hit if that one employer base goes through difficult times. A city with multiple economic drivers will be more stable and more likely to grow.
- Are wages rising, falling or stagnant?
- What is the unemployment rate?
Real Estate Factors
Once you find a market or couple of markets that look positive at the economic level, it makes sense to start looking the general housing market in that area. Some of the questions to ask here include:
- What is the ratio of owner occupied to rental properties? Areas with a higher percentage of renters will obviously create a bigger pool for you to choose from and more demand for quality rental units.
- Price-to-Rent Ratios. A general rule is that monthly rents should be at least 1-1.5% of the property value. If you buy a property for $250K and can only rent it for $1,800/month, the likelihood you will see positive cash flow if slim and you will be banking on appreciation.
- Vacancy Rates and Time on Market. A property purchased at a bargain rate does you no good if you cannot find a renter. Evaluating trends in the number of vacant properties and average time to fill a vacant rental can be critical.
- Housing Sales Statistics. Even if you are looking at a long term buy and hold, the ability to sell a property and receive a reasonable price is critical to your exit strategy. This can also be a solid indicator of the overall health of the real estate market. Look at trends in month’ supply of inventory, time on market, and asking vs sales prices.
Once you have used the above metrics to identify a possible market at the regional or city level, you can then hit the zoom button and start focusing on the local or neighborhood level sub-markets that fit your criteria.
Regulatory Factors
Some areas are more friendly to real estate investors than others. If you take two individual properties with similar dynamics such as cost, condition and rental potential, you can see very different results based on things like taxes and whether landlord/tenancy laws are more or less favorable.
It really pays to understand the following factors:
- Property tax rates
- Property insurance rates
- Municipal landlord taxes – an IRA or 401k may not be exempted from certain local taxes or fees
- Local landlord tenant law – how easy is it to evict a tenant, for example.
Local Market Factors
You will want to reevaluate most of the above mentioned real estate factors at the more local level. In addition, you will want to look at things like neighborhood safety, quality of schools, access to transportation, proximity to shopping and recreation and other factors that drive desirability.
Investing in real estate is not really that different than any other type of investment. You want to identify opportunities that present the maximum potential with the least risk possible. Understanding a real estate market is a lot like evaluating a particular industry sector when you are investing in equities. You would not just decide to invest in Nike because you live in Portland, or Coca-Cola because you live in Atlanta. You would evaluate how that company’s stock is likely to perform based on many factors related to the industry, competition, regulation and the like. If you apply the same kind of analytical reasoning to real estate markets, you are more likely to find properties that will produce success for your Checkbook IRA or Solo 401(k) plan.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
