Pros and Cons of Using IRA Money to Buy Real Estate

Whether you are just starting in your profession, or have already advanced in your career, it is important to think of investing and retiring. With the majority of the workforce in the job market being employed, it is wise to remember the same job could end. Even when you have job security, a time will come when you have to retire. As a result, having a retirement plan is amongst the wisest choices you can make.

While there is a variety of widely preferred retirement plans, one of the popular ones is the individual retirement account. However, while it does offer decent benefits, there are several limitations when it comes to investing.

For instance, when it comes to investing in the real estate sector, specific rules are governing IRA accounts. Some of the rules you are needed to observe include:

  • You are not allowed to mortgage the property.
  • You are not allowed to live in the property, or use it in any way. The property is strictly for investment purposes only.
  • You must pay an independent party to work on the repairs.
  • If the property operates at a loss, you’re not supposed to receive any tax breaks.

If you know your way around the real estate investment sector, you can receive attractive returns from your IRA. So, is this a risk you should take? Should you use your IRA to invest in real estate? Here’s a comprehensive look at the pros and cons of using IRA monies to buy real estate.


  1. There is potential for tax-free growth. This is especially ideal when the real estate is held in a Roth self-directed IRA.
  2. It is a great way to diversify your investment portfolio. Most IRA custodians are restrictive of IRA investments to stocks as well as bonds. Thus, having a self-directed IRA invested in a real estate project can lead you to grow and diversify your portfolio.


  1. The IRS closely monitors such investments to ensure you’re not breaking any of the aforementioned rules and regulations.
  2. Since real estate is a relatively pricey investment, you may end up putting all of your money into one project. This may be considered risky, and it’s also a lack of diversity.

At the end of the day, there are both pros and cons when you want to use your IRA money to purchase real estate. While it is a worthy investment, it does have moderate levels of risk, which you have to assess if you are willing to take.