An Individual Retirement Account (IRA) can be used to invest in real estate. A self-directed IRA (SDIRA) allows the holder to invest in a wider range of assets such as real estate, private placements, and precious metals in addition to traditional assets such as stocks, bonds and mutual funds. An investor can use their self-directed IRA funds to purchase property, either directly or through a real estate investment trust (REIT), and can also use the funds to make improvements or renovations to the property.
The income and appreciation generated by the property are directed back into the IRA, where they can grow tax-free or tax-deferred. As with all IRA investments, there are certain rules and restrictions that must be followed, such as not using the property for personal use or benefit, and not engaging in any prohibited transactions.