Grow your Real Estate IRA with the BRRRR Strategy
Have you heard about the real estate strategy referred to as BRRRR?
The acronym is for Buy, Rehab, Rent, Refinance, Repeat. Utilizing this method is a great way to accelerate the buildup of equity in a rental property portfolio.
The success of this approach hinges on being able to add value to properties through rehab, and then tap that equity gain as capital to acquire additional properties.
You can utilize the BRRRR strategy within a self-directed IRA and see powerful results. Within an IRA, however, there are a few details that are slightly different that one might encounter in an after-tax environment.
Let’s take a look at how you can use the BRRRR method to grow your self-directed IRA.
B — Buy
When pursuing this strategy, the old adage that “you make money when you buy” is absolutely true. The goal is to acquire and rehab a property, then be able to pull out as much equity as possible to finance the next acquisition.
Finding a property with the potential to effectively add value is key. Many investors use a 70% rule as a guide, meaning that acquisition cost plus rehab costs represent 70% or less of the after-rehab value of the property.
Knowing that most rehab projects go over budget, a conservative number like 70% is wise. That way, if you end up in a situation where acquisition and rehab costs represent 75-80% of ARV, you have still generated a reasonable amount of equity to roll forward with.
The process works best if an IRA can purchase a property and pay for rehab costs using all cash. It’s possible to joint venture with other investors or use hard money loans, but those options will increase the cost and complexity. Be sure in either case that the IRA avoids any interaction with disqualified persons, and that any debt instrument is non-recourse.
R — Rehab
The focus of the rehab stage of the process is to add value cost effectively. Avoid high end finishes and expensive upgrades — they often cost more than the value they add to the property.
A rental property needs to be clean, functional, safe, and reasonably appealing. Focus on the repairs and updates that achieve that goal.
Be sure to put a little curb appeal on the front of the house to make a great first impression for a loan appraisal.
Of course, when your IRA is the property owner, your role in the rehab process is very limited. You cannot work on the property or otherwise add value to the process.
Your role is to make the key decisions on what the property upgrade will include and hire the vendors to make that project plan happen. For intensive rehab projects, you should probably hire a project manager or lead contractor to manage the many day-to-day variables.
If permits are required, they should be obtained by the contractors the IRA hires to do the work, not by you.
R – Rent
Once the property has been updated and is ready to occupy, you want to get a tenant in place. The sooner you can get the property producing positive cash flow, the better.
As with any rental property, there are some tricks to marketing and screening that will help you find the best possible tenants. You want someone who will take good care of the property, as it may be some time before you can refinance, and you still want the property looking sharp when the appraisal happens.
R – Refinance
An effective refinance transaction is one of the primary drivers of success when applying the BRRRR strategy. The goal is to pull as much cash out of the property as possible to facilitate the acquisition of additional properties.
In the non-IRA world, you can obtain relative high loan-to-value financing in a reasonably short period of time after putting the property in service.
With an IRA, the requirement to use non-recourse financing changes the lending environment. Being aware of this change and tempering your expectations accordingly is important.
Some non-recourse lenders may require a longer seasoning period before using appraised value. They may want to see a property in-service for a year. Some lenders will use a newly appraised value without seasoning.
Non-recourse loans are more conservative by nature, and you can generally expect a maximum LTV of about 60-65%. Lenders will also want to see approximately 10-15% of the property value in cash reserves within your self-directed IRA.
As an individual investor, it’s possible with the right properties and good financing to pull 100% of your initially invested capital out of a property and move onto the next deal, perhaps within 3-6 months. In an IRA, expect to leave some capital tied up in the initial property.
Once a property has mortgage financing in place, it will be generating Unrelated Debt-Financed Income, which is subject to taxation. The tax impact is generally nominal, but you’ll want to work with your CPA to understand the process and prepare the necessary tax return for your IRA.
Investors with a Solo 401(k) plan benefit at this stage, as a Solo 401(k) is exempted from taxation on UDFI generated via real estate debt.
R – Repeat
If you’ve purchased and re-financed effectively, your IRA should now own a performing property with only a small amount of IRA capital locked up into the deal. The IRA can then move that capital forward and repeat the process with additional properties over time.
Contact us with your questions about using your IRA to buy, rehab, or rent properties »
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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.
