• Skip to primary navigation
  • Skip to main content
Good Financial Cents®
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
  • Make Money
    • Get Money Now
      • Ultimate Guide to Making Money
      • Need Money Now
      • Get Free Money Fast
      • Make Money Fast
      • Make $1K Per Month
      • Make $100 Per Day
    • Control Your Destiny
      • Self Employed Jobs
      • Make Money from Home
      • Hobbies That Make Money
      • How to Become a Freelance Writer
      • Small Business Ideas to Start
      • How to Become an Independent Contractor
      • Best Online Jobs
    • Passive Income
      • Passive Income Ideas
      • Multiple Streams of Income
      • Extra Income
      • Residual Income Ideas
      • Learn to Sell e-Books
      • Make Money on Facebook
      • Make Money on Tiktok
      • Best Online Survey Sites to Make Money
    • Explore More
      • Best Side Hustle Ideas
      • Make Money for Teens
      • Best Online Colleges
      • Best Jobs No College Degree
      • Become a Millionaire
      • Careers for the Future
  • Manage Money
    • Best Of
      • Budgeting Tools
      • Personal Finance Software
      • Best Cashback Cards
    • Company Reviews
      • Personal Capital vs Mint
      • Personal Capital Review
      • SmartAsset Review
    • Guides
      • Buy or Lease a Car
      • What is Liquid Net Worth?
      • Setting Financial Goals
      • How to Budget
      • Ways to Save Money
    • Explore More
      • How Much Car Can I Afford?
      • Best Auto Refinance Companies
  • Invest
    • Best Of
      • Best Short and Long-Term Investments
      • Best Low Risk Investments
      • Best Online Stock Brokers
      • Best Crypto Exchanges
      • Best Short Term Investments
      • Best Long Term Investments
      • Best Trading Platforms
      • Best Investment Apps
    • Company Reviews
      • Lending Club
      • Robinhood
      • M1 Finance
      • Ally
      • TD Ameritrade
      • Fundrise
      • Betterment
      • Etrade
      • Wealthfront
    • Guides
      • Investing for Beginners
      • Investing Small Amounts of Money
      • Investing in Real Estate
      • No Money Down Real Estate
      • Bonds vs Stocks
      • Peer to Peer Lending
      • Best Hedges Against Inflation
      • Safe Bitcoin Investing in 2023
    • Explore More
      • Bitcoin vs. Real Estate
      • Betterment vs Wealthfront
      • Investing for College Students
      • Stock Market Alternatives
    • By Investment Amount
      • How to Invest $100
      • How to Invest $1K
      • How to Invest $2k-$3k
      • How to Invest $5K
      • How to Invest $10K
      • How to Invest $15k
      • How to Invest $20K
      • How to Invest $30k
      • How to Invest $50K
      • How to Invest $100K
      • How to Invest $200K
      • How to Invest $500K
      • How to Invest $1M
  • Taxes
    • Best Of
      • Best Tax Relief Companies
      • Best Tax Software
    • Guides
      • Federal Income Tax Guide 2023
      • Taxes and Cryptocurrency
      • How to Do Your Own Taxes
      • How to Invest Your Tax Refund
      • Hiring a Professional Tax Preparer
      • Tax Tips for Freelancers
    • Company Reviews
      • TurboTax Review
      • H&R Block Review
      • Taxslayer
      • Tax Act
  • Insurance
    • Best Of
      • Best Life Insurance
      • Best Home Insurance
      • Best Auto Insurance
      • Cheap Term Life Insurance
      • Car Insurance For Young Adults
    • Guides
      • Term vs Whole Life
      • Different Types of Car Insurance
      • Average Cost of Car Insurance
    • Explore More
      • Life Insurance Over 50
      • Life Insurance Over 80
      • $1 Million Life Insurance
      • $2 Million Life Insurance
      • $3 Million Life Insurance
    • Company Reviews
      • Banner Life Insurance
      • Ladder Life Insurance
      • Health IQ
      • Haven Life
      • Policygenius
      • State Farm Auto Insurance Review
  • Retirement
    • Roth IRA
      • Best Places to Open a Roth IRA
      • Best Investments for Roth IRA
      • 7 Roth IRA Secrets
      • Roth IRA Conversion Guide
      • Roth IRA Rules
      • Roth IRA vs Roth 401k
      • Are Roth IRA Contributions Tax Deductible?
    • 401(k)
      • 401(k) Limits
      • 401(k) to Roth Rollover
      • Is 401(k) Enough for Retirement?
      • Maxed Out 401(k): What's next?
    • Traditional IRA
      • Traditional IRA Rules and Limits
      • Traditional IRA vs. 401(k)
      • Simple IRA Rules
      • SEP IRA Rules
      • How Much Do You Need to Start an IRA?
    • Explore More
      • SEP IRA vs. Roth IRA
      • 457 Plan for Successful Retirement
      • 401a Rollover Rules
      • How to Retire at 50
      • How to Retire at 55
  • Banking
    • Best Of
      • Best National Banks
      • Best High-Yield Savings Accounts
      • Best Checking Accounts
      • Best Savings Accounts
      • Best CD Rates
      • Best Money Market Accounts
    • Company Reviews
      • BBVA
      • Synchrony
      • Wells Fargo
    • Explore More
      • 9 Banking Alternatives for 2023
      • What is a Credit Union?
  • Home
    • Best Of
      • Best Mortgage Lenders
      • Best Mortgage Refinance Companies
      • Best Home Warranties
      • Best Homeowners Insurance
      • Best VA Loans
      • Best Mortgage Rates
      • Best Moving Companies
      • Best Home Security
    • Guides
      • Home Buying Checklist
      • Online Home Appraisal
      • How Much House Can I Afford?
      • First-time Homebuyer Programs
      • How to Get Approved for a Home Loan
      • Save Money When Building a House
      • How to Save for a Downpayment
      • When to Refinance Your Mortgage
    • Explore More
      • 15 vs. 30-year Mortgage
      • Home Warranty vs. Home Insurance
      • Veterans United Home Loan Review
      • Quicken Loans Review
      • HELOC vs Second Mortgage
      • DCU Mortgage Review
      • Costco Mortgage Program Review
      • USAA Mortgage Loan Review
  • Credit
    • Best Of
      • Best Credit Repair Companies
      • Best ID Theft Protection Services
      • Best Credit Report Options
      • Best Bad Credit Loans
    • Guides
      • How to Build Your Credit Score
      • How to Raise Your Credit Score in 5 Months
      • How to Dispute Your Credit Report
      • Hot to Remove Collections from Your Credit Reports
      • How Identity Theft Destroys Your Credit Score
    • Explore More
      • What is a Good Credit Score?
      • What is a Bad Credit Score?
  • Debt
    • Best Of
      • Best Debt Consolidation Loans
      • Best Personal Loans
      • Best Student Loans
      • Best Student Loan Refinance
    • Guides
      • What is Debt Consolidation?
      • How to Get Out of Debt
      • How to Get a Personal Loan Approved
      • How to Pay Off Student Loans Faster
      • Should I Consolidate My Debts?
      • Should I File for Bankruptcy?
    • Company Reviews
      • Credible
      • Sofi

Using a Self Directed IRA to Invest in Real Estate: Is Fundrise the Answer?

https://www.goodfinancialcents.com/wp-content/uploads/2019/07/MG_5503-150x150.jpg
  • Written By:
    Jeff Rose, CFP®

    Jeff Rose, CFP®

    Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance...

    Read More
  • Updated: September 3, 2022
  • 7 Min Read
  • Advertising Disclosure

    Advertising Disclosure

    GoodFinancialCents® has an advertising relationship with the companies included on this page. All of our content is based on objective analysis, and the opinions are our own. For more information, please check out our full disclaimer and complete list of partners.

Quality Verified THE GFC® PROMISE
shield check icon
Quality Verified

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

shield check icon
Why You Can Trust GoodFinancialCents®

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

When it comes to investing for retirement, there are more than a few strategies to consider. Many investors play it safe by leaning heavily on their work-sponsored 401(k) accounts while others diversify with a Roth IRA or traditional IRA. Some investors who want to get fancy with their retirement buy annuities or invest in peer-to-peer lending opportunities like Lending Club.

Then there are investors who feel bold enough to take the reins with a self-directed IRA. With this option, individuals can invest their funds in any number of ventures while gaining meaningful tax advantages.

What is a Self-Directed IRA?

Before we dive into the intricacies of using an IRA to invest in real estate, let’s first talk about the investment vehicle that allows this to happen – the self-directed IRA. While it might sound daunting, a self-directed IRA isn’t that different from any other type of IRA. What makes these plans unique is the fact that you have many more investment options available, and the overall direction of your investing plan comes from you.

While most IRAs only allow you to invest in stocks, bonds, CDs, and mutual funds, self-directed IRAs let you invest your money into other, more flexible investments. Options can include real estate, notes, and tax lien certificates, to name a few. While a self-directed IRA won’t work for everyone, it can be a smart option for individuals who are extremely knowledgeable about certain industries.

When you’re able to “invest in what you know,” you have the potential for greater returns over time.

Using a Self Directed IRA to Invest in real estate

Why Invest in Real Estate through an IRA?

With real estate prices near all-time highs throughout the country, it’s no wonder many people have considered investing some of their self-directed IRA funds into housing or commercial property. By investing some of your IRA funds in real estate, you can defer or potentially eliminate taxes while having the potential for a robust return on your money.

While your primary residence may not be seen as a real “investment” since you have to live there, income-generating  rental or commercial real estate properties can be prudent investments that bring in solid returns while also growing in value.

The benefit of investing self-directed IRA funds into real estate is simple. Not only will the property you purchase have the potential to appreciate in value, but all of the income that you receive will be tax-deferred. This includes both rental income and capital gains. Investing in real estate is also a smart way to diversify your retirement portfolio such that it is less reliant on stocks and bonds. With all of these perks, it’s no wonder that investing in real estate has become a popular option.

Unfortunately, there are some rules governing self-directed IRAs that make investing in real estate a difficult proposition. Due to these stipulations , there’s more to using a self-directed IRA for real estate investing than just selecting a property.

For example:

  • You can only invest self-directed IRA funds into property used for business purposes. You cannot use your IRA to buy a second home, an occasional rental, or a personal residence.
  • You need enough money to buy properties in cash. Because IRA rules prohibit the use of a mortgage within them, you cannot borrow money to purchase property within your IRA. You must have the funds to purchase properties outright. This could be a difficult feat depending on real estate prices and how much you want to invest.
  • The process may take months or years. Individuals who want to invest their self-directed IRA funds into real estate should plan on spending months or years to bring their idea to fruition. Not only will you have to open the proper accounts and roll your assets over, but you’ll have to search for the right property, too. In a hot real estate market, it can take months to find a property that fits your goals. Once you do, it takes more time to get an offer accepted, and then even longer for the sale to close.
  • You cannot take advantage of your IRA investments until you retire. Due to the way self-directed IRAs are set up, your real estate investment cannot be altered to meet your personal needs. For example, you cannot move into the property if you wish to live there later on.
  • Being a landlord isn’t for the faint of heart. Even if buying real estate within a self-directed IRA seems smart on paper, you should not underestimate the time investment required. It takes time to find tenants, and you’ll be responsible for initiating repairs and upkeep. All money used for repairs will be paid out of the IRA, but you’ll need all expenses approved by the IRA custodian. There’s quite a bit of paperwork involved with holding real estate in a self-directed IRA, all of which will fall into your hands.

Another Way to Invest in Real Estate: Fundrise

If you’re an investor who likes the idea of investing self-directed IRA funds into real estate but doesn’t necessarily want to become a landlord, keep in mind that there’s another way. With the real estate investing platform Fundrise, you can invest in real estate offerings that provide exposure to diverse pools of real estate investments.

With Fundrise, you can invest in real estate without actually buying physical real estate. This strategy allows you to enjoy the upsides of real estate investing (strong returns, potential for growth, etc.) without enduring the potential downsides of renting property or dealing with tenants.

And, so far, the returns have been amazing. Fundrise reports average returns between 8.76 percent and 12.42 percent over the last five years. So far in 2017, the first and second quarters of the year have returned an average of 10.59 percent and 10.88 percent for investors, respectively. These returns are nothing to sneeze at, especially for an investment that is entirely passive and “hands-off” once you take the time to open an account and get started.

real estate ira

If you’re up for investing your self-directed IRA funds with Fundrise, you’ll do so via Fundrise’s partnering IRA custodian, Millennium Trust Company. Here are the steps involved:

  • Step 1: Create Fundrise IRA account
  • Step 2: Create, connect, and fund Millennium Trust Company IRA account
  • Step 3: Choose your investments on Fundrise

Advantages of Investing with Fundrise

While no investment on Earth is foolproof, investing in Fundrise comes with a ton of advantages that are difficult to secure elsewhere. Here are some of the biggest benefits that come with investing your self-directed IRA funds with Fundrise:

  • Fundrise charges fairly low fees for their services. Fundrise charges investors 0.85% of their invested capital to manage their real estate investments every year. If you’re keen on minimizing fees and don’t want all the expenses that come with owning physical real estate, this is a good alternative.
  • You can invest in multiple funds. Fundrise offers a variety of investment options to choose from. For instance, you can invest in geographically focused funds that target assets in specific regions of the country such as the East or West Coasts, or you can invest in thematic funds that follow a specific investing strategy, such as using opportunistic equity ownership to maximize long-term appreciation potential..
  • Fundrise accounts are free. While Millennium Trust Company does charge an annual fee for managing your real estate investments, Fundrise has negotiated a favorable fee structure on behalf of its investors. In addition to this benefit, there are no special or added fees charged by Fundrise for investing through an IRA account. Moreover, you are welcome to sign up for an account, explore investment options, and get your questions answered without any commitment.
  • Investing through Fundrise requires limited legwork. Where owning a rental property can be a huge headache, investing in real estate through Fundrise is as passive as it gets. You’ll never have to deal with leasing, scheduling repairs, or handling the daily hassles that come with owning physical real estate.
  • Invest from the comfort of your home. Where shopping for physical real estate can be tiresome and time-consuming, investing in real estate through Fundrise is a breeze. You won’t have to leave your home or travel the country to find the best real estate deal. You can go through the entire process online without ever leaving your home.

Disadvantages of Investing in Fundrise

While investing in Fundrise can be a smart idea for some people, that doesn’t mean it’s the right option for everyone. Here are a few reasons you should think long and hard before opening a self-directed IRA and/or investing in Fundrise.

  • Fundrise is still fairly new. Since Fundrise wasn’t founded until 2012, there’s not enough historical data to say where returns could go in the next five, ten, or twenty years. Since your IRA is a long-term investment vehicle that is meant to fund your retirement, you’ll need to be sure Fundrise will be around for the long run.
  • There are limited investment options available. Fundrise has limited investment options available, and that’s especially true when it comes to investing through your self-directed IRA. If you want to choose from hundreds of different investment options, Fundrise isn’t the best choice.
  • You won’t get to pick individual investment properties. While there are notable advantages that come with passive and diversified real estate investing through Fundrise, it isn’t the same as purchasing real estate outright. If you like the physical component of buying a property you can walk through and touch, Fundrise may not be for you.

Is Investing in Fundrise For You?

While there is no perfect formula for the ideal Fundrise investor, there are some signs to look for that can help you determine whether this strategy is a good fit for your lifestyle and portfolio.

You should consider investing your self-directed IRA funds through Fundrise if…

  • You want to take a “hands-off” approach to real estate investing
  • You’re comfortable with the real estate funds and eREITs available through the platform
  • You feel confident in Fundrise’s track record

You shouldn’t consider investing in Fundrise if…

  • You want to buy real estate you can touch
  • You prefer to deal with the everyday tasks of managing real estate
  • You want to choose from a more expansive array of options

The Bottom Line

If you’re an accomplished investor who feels comfortable opening a self-directed IRA, then Fundrise might be the ideal investment for you. By investing your money on the platform, you can diversify your portfolio while setting yourself up for impressive gains that have exceeded many other investment options over the last five years.

Still, it’s important to educate yourself on Fundrise and why it’s advantageous for investors. If you want to dig a little deeper into how the platform works, I highly suggest that you look over their website, and specifically their FAQs.

The best part about investing on this platform is that you can get a taste of real estate without the hassle and stress of becoming a landlord. You won’t have to get your hands dirty, deal with leasing vacant space, or evict anyone – ever.

Like any other investment, however, there are risks involved with investing on Fundrise. Make sure you understand how the platform works, the benefits of using a self-directed IRA, and the pitfalls you may face before you sign up. While investing your self-directed IRA funds into real estate can be a boon for your finances, you should make sure that any decision you make is an informed one.

Facebook LinkedIn Twitter

About the Author

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.


Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor.

While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council.

Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.

Facebook Twitter LinkedIn

You Might Also Enjoy

SaveBetter Review: The Best Place to Go for High-Interest Savings?

SaveBetter Review: The Best Place to Go for High-Interest Savings?

How to Achieve Important Long-Term Financial Goals

How to Achieve Important Long-Term Financial Goals

15 Best Low-Risk Investments for 2023

15 Best Low-Risk Investments for 2023

How to Crush Your Short-Term Financial Goals (IRL Examples)

How to Crush Your Short-Term Financial Goals (IRL Examples)

What Is The SIPC and How Does it Protect Your Investments?

What Is The SIPC and How Does it Protect Your Investments?

What Happens When Your Bank is Seized by the FDIC?

What Happens When Your Bank is Seized by the FDIC?

One Response

  1. Syed November 15, 2017

    Thanks for the post Jeff I never really knew how a self directed IRA worked this is some great information.

    I’m not sure how sustainable these nice returns are since like you mentioned the company has only been around since 2012. The next market correction/real estate drop will really test the mettle of this company.

    Reply

Leave a Reply

Cancel reply

  • Make Money
  • Manage Money
  • Invest
  • Taxes
  • Insurance
  • Retirement
  • Banking
  • Home
  • Credit
  • Debt
  • About
  • Contact
  • Facebook LinkedIn Twitter

© 2023 Good Financial Cents®. All Rights Reserved. | Privacy Policy | Disclaimer

All written content on this site is for information purposes only. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

All third party trademarks, including logos and icons, referenced in this website, are the property of their respective owners. Unless otherwise indicated, the use of third party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between Good Financial Cents® and the owners of those trademarks. Any reference in this website to third party trademarks is to identify the corresponding third party goods and/or services.

x
x