IRA Real Estate Strategies for 2017
Last month we took a look at what 2017 may hold in store for real estate investors. We identified several major trends that will shape the profile of investment real estate, including; a continuing increase in demand from Millennial homebuyers, the likelihood of increasing mortgage rates, broader access to credit, and steady home appreciation. So how does an investor with a self-directed IRA or Solo 401(k) put that kind of information to work? What strategies will have the highest likelihood of success in 2017 and beyond?
Rental Property is Still a Strong Bet
An improving economy and a surge of Millennials into their peak homebuying years is an important story, and many current renters will look to buy a home for the first time. However, there are still a whole lot of folks of many generations that cannot afford home ownership or choose not to own a home for various reasons.
Because of strong demand for homes and a lack of inventory in many markets, the supply of rentals is still well below the need. Competition for homes that will make good rentals is tight, especially in hot markets like Seattle, Denver and Portland, but there are a lot of other markets where property that will cash flow well can be found. An IRA or 401k investor who can come into such deals with all cash has an advantage in competitive buying scenarios, which is something we have been pointing to for years.
Predictions are that the pace of increases in rental rates may slow, but the trend is towards continued increases due to the basics of supply and demand.
If your home market is not viable, it may make sense to look at opportunities in the Midwest or Southeast.
Generally speaking, an IRA owned rental property is a good option for many investors. The principal of the IRA is invested in a real asset that does not have the kind of price volatility of stocks. Monthly cash flow provides income from this principal asset, and there is the potential for appreciation.
Flipping Homes is a Great Play, for a While at Least
Because of the high demand for homes, the opportunity to flip houses has been a great play in many markets across the country for several years now. We see no sign of this trend going away any time soon, as there are just not enough new homes being built to meet demand. What is changing is the pace of home value appreciation, and while home values are expected to continue on an upward trend, the rate is predicted to slow. While many of the factors that created a housing bubble in the 2005-2007 period are not present, we are seeing a whole lot of individual investors getting into the flipping business. Such widespread participation in home flipping is often a sign that the party is getting near the end, and that may or not be the case at the current time.
What this means is that if you wish to have your IRA participate in flip opportunities, you need to be that much more diligent in your research, more conservative in estimating your after-repair value, and focused on quick turnaround. The sooner you can get out of a flip when markets may be cooling, the better.
If you look at flip opportunities with the dual option of converting to a long term rental, and the cash flow justifies the up-front investment in repairs, that can be a good way to hedge as well.
The reality about flipping is that there are always opportunities to profit in this fashion, you just have to focus on the right property, in the right market, at the right time.
Again, IRA and 401(k) investors with access to significant cash resources will have an advantage in pursuing flips. Access to cash can mean all cash offers and no need to seek outside funding for deals, all of which can equate to more competitive offers, faster purchase transactions and reduced holding costs.
Being the Bank Always Works Well
While we do see a trend towards increased access to credit in the coming years due to de-regulation in the banking world, there will always be good opportunities to put your Checkbook IRA LLC or Solo 401(k) to work as a private lender. We are also seeing a trend towards increasing interest rates, which can be a boon for those with money to lend.
The reality is that banks just don’t lend money to home flippers. Many smaller builders are still challenged to obtain bank financing, or just find the paperwork to get loans to be a huge ordeal. Your IRA can be a lender on such construction or re-construction projects and earn a good rate of return.
Think Diversification
While there are a lot of potentially positive trends for IRA investors in the coming year, this is also a period of significant transition, and that always creates uncertainty. The best way to hedge against economic uncertainty is to diversify. Being in real assets such as property or mortgage notes represents a great way to get some capital out of the volatility of financial markets. Even within the real estate asset class, you can diversify by being in different deal types or different markets.
We think that smart investors will find a lot of potential paths to success in 2017.
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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.
