The Importance of Creating an IRA Rental Property Business Plan
Investing in rental property with a self-directed IRA or Solo 401(k) is a fantastic way to diversify your tax-sheltered retirement savings. As an asset class with a performance profile not generally linked to financial market cycles, real estate can help you grow and protect your wealth.
With income property, your retirement plan can hold a solid asset with stable value that produces consistent and predictable income through cash flow. Real estate also has the potential for appreciation over time.
In order to maximize the performance of your IRA’s rental property investment while minimizing your risk exposure, it’s valuable to treat the activity like a business.
Whether your goal is to diversify with a single property or to acquire a portfolio of properties to replace your income once you retire, having certain structures and milestones in place to chart your progress can enhance the endeavor.
The plan you create will vary based on your goal. Below are some of topics to consider as you formulate the plan best suited to your needs.
Market Selection
Investing in your own local market may or may not provide the best income property opportunities, especially if you live in a high-priced big city. Sometimes looking at a different neighborhood in your own city or even another state can make more sense.
Think about whether your goal is to purchase fewer higher-cost properties in more desirable neighborhoods, or a larger number of lower-cost properties to create better diversification. Will cash flow or appreciation potential be more of a focus for your strategy?
In terms of market analysis, it’s important to think about how you’ll evaluate the short- and long-term prospects for any market where you choose to invest.
Team Building
Real estate investing is a team sport. You need to rely on the expertise of real estate agents, lenders, insurance providers, contractors, property managers, attorneys and other specialists.
You may be able to fill some of those roles yourself, but likely not all. If you choose to invest at a distance, you’ll rely more on service providers than you might need to when investing in your local market.
For purposes of a real estate investment plan, identifying the resources you’ll need, where to find team members, and how you’ll measure their performance over time are all important considerations.
Acquisition Strategy
Thinking about what types of property you’ll invest in and how to acquire those properties will have a big impact on how the rest of your business plan develops.
If your IRA will be purchasing distressed properties at auction, you’ll need to be prepared in advance with your checkbook IRA LLC or Solo 401(k) and have familiarity with the auction process. You will also need a team of contractors to get that property into rentable condition.
If, on the other hand, your plan is to work with a realtor or turnkey provider, the process of purchasing a property will be slower and you’ll have more time to formulate a ready-to-rent plan for any necessary repairs or upgrades. There may not even be a necessity for significant work to be done on the property.
Financing Strategy
Your IRA or 401(k) can purchase properties in an all cash transaction or choose to use mortgage financing. If you’re considering using mortgage financing, it will be beneficial to speak with non-recourse lenders in advance to understand what’s possible in terms of loan-to-value thresholds and type of property.
Conventional non-recourse lenders are not generally going to write loans on properties that need significant amounts of rehab work. In those situations, you may need to purchase the property with cash in the IRA, and then refinance with a lender once the property has been placed in service and is generating rental income.
You can also use private or hard money lenders to acquire and rehab properties, then refinance into a lower rate long-term loan from a more conventional non-recourse lender.
Ready-to-Rent
A critical part of any income property plan is the initial process of getting your newly-purchased property rent-ready and able to be marketed to potential tenants. The more efficient you can be in this phase, the faster your IRA will start receiving income in the form of monthly rents.
Right after your retirement plan purchases a property isn’t the best time to begin this type of planning. You want to be able to hit the ground running.
If you’re purchasing a property via normal realtor channels, you’ll likely have about 30 days or so from initial contract to closing. Use that time to think about any work that will be necessary to make the property safe and appealing.
You’ll also want to line up in advance any necessary contractors you’ll need to hire to make repairs or upgrades and have a plan for which types of services will need to be done in which order. Painting before installing carpet is generally a better order of things, as an example.
Property Management
Will you self-manage or hire a property manager to run the property? There are advantages and disadvantages to both approaches. Knowing in advance which approach will work best for you is important.
If you choose to hire a property manager, arranging these services prior to acquiring a property will greatly improve the process and minimize your purchase to rent-ready timeframe.
If you’ll self-manage, you’ll need to consider a sub-plan of your business plan to address the various policies and procedures you’ll want to have in place to effectively perform this role in compliance with both IRS rules and local tenant-landlord laws.
Contingency Planning
Any business plan needs to consider the things that can go wrong and try to have processes in place to address the most likely points of failure. Making sure your IRA has quality landlord insurance is something to be sure to think about in advance.
You also need to think about having some cash reserves in place within the IRA or 401(k) in case it takes longer to get a property rented or if an extended vacancy or unexpected repair comes up in the future. The amount of reserves will be less for an all cash purpose than for a mortgaged property, as the mortgage payment needs to be factored into the latter case.
Another possible hiccup in a successful rental plan is the need to evict a tenant. Knowing what this process looks like and having an attorney you can rely on to execute the process can keep you from being caught “flat-footed” if the need arises.
Growth Strategy
Saving for retirement is typically a long game. If you’re looking to use income from rental properties in your IRA to support yourself in your golden years, you’ll want to work towards creating a portfolio that will produce sufficient income.
Using leverage allows you to acquire more properties more quickly, but reduces your amount of cash flow. Purchasing properties all cash will mean fewer properties, but potentially higher monthly income.
A strategy that relies on leverage in the early stages, but accelerated mortgage payoffs prior to the need to start drawing income can work well.
Some investors start with one or a few single-family rentals, and then upgrade to apartments or commercial properties once they accumulate the necessary account value to do so.
Each scenario is different based on the amount of capital available and time to retirement. Thinking proactively about how many properties will be acquired, whether leverage will be used or not, and how the income from properties will be used — to invest elsewhere, take as distributions, or use to acquire more properties — can be a good way to ensure you maximize your changes of achieving your goals.
Exit Strategy
With any rental property, there are several possible exit strategies.
Some investors want to hold properties for the long term and rely on the monthly cash flow. In other cases, there may be a certain level of appreciation in property value, where it makes sense to sell and lock in a capital gain that can then be used to acquire more or large properties.
Another approach is to acquire a newly updated property to hold as a rental, then sell just ahead of the next major repair cycle for core systems like roofing or HVAC and thereby avoid large capital expenses.
Another popular option is to hold income-producing rentals well into retirement, and then start selling of the properties but holding back a note as one ages. This allows you to keep a solid asset that produces consistent cash flow, while also creating a quick liquidity burst in the form of the down payment from the purchaser.
Getting out of being a landlord in exchange for being a lender can also appeal to some folks as they move up in years.
Thinking in advance about what type of strategy will be best suited to your needs will help you formulate the best plan. It’s kind of like reading the last chapter of a book first to see if it goes somewhere good.
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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.
