--- title: Common Mistakes When Investing in Real Property Through a SDIRA description: A Self-Directed IRA could be a means to invest tax-advantaged retirement funds in real property. However, it’s essential to navigate the rules governing everything from property ownership and usage to managing expenses and profits to avoid IRS penalties. image: https://blog.preferredtrustcompany.com/hubfs/Mistake%20Img-1.webp --- [Skip to content](https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira#main-content) [![](https://blog.preferredtrustcompany.com/hs-fs/hubfs/Horizontal%20Logo-HighRes%20JPG%20cropped-1.jpg?width=325&height=91&name=Horizontal%20Logo-HighRes%20JPG%20cropped-1.jpg)](https://preferredtrustcompany.com/) - Get Started Show submenu for Get Started - [Schedule Consultation](https://info.preferredtrustcompany.com/preferred-trust-company-consultation) - [Open an Account](https://preferredtrustcompany.com/self-directed-ira-applications/) - [About Preferred Trust](https://preferredtrustcompany.com/about-ira-custodian/) - [Client Testimonials](https://preferredtrustcompany.com/client-testimonials/) - SDIRA Resources Show submenu for SDIRA Resources - [Why Self-Direct?](https://preferredtrustcompany.com/why-self-directed-ira/) - [Inherited IRAs](https://preferredtrustcompany.com/inherited_iras/) - [Prohibited Transactions](https://preferredtrustcompany.com/prohibited_transactions/) - [IRA LLC](https://preferredtrustcompany.com/checkbook-ira-llc/) - [Frequently Asked Questions](https://preferredtrustcompany.com/faqs/) - [Retirement Industry Glossary](https://preferredtrustcompany.com/retirement-industry-glossary/) - [Media](https://preferredtrustcompany.com/media/) - [Blog](https://blog.preferredtrustcompany.com/blog) - Community Show submenu for Community - [Company Partnership](https://preferredtrustcompany.com/company-partnership/) - [Investment Resources](https://preferredtrustcompany.com/resources-new/) - [Investment Services](https://preferredtrustcompany.com/investment-services/) - Forms Show submenu for Forms - [Forms](https://preferredtrustcompany.com/forms/) - [Fee Schedule](https://preferredtrustcompany.com/fee-schedule/) - [Pay Your Fees](https://preferredtrustcompany.com/shop/) - [Login](https://icp.infovisa.com/0234) Open main navigation Close main navigation - Get Started Show submenu for Get Started - [Schedule Consultation](https://info.preferredtrustcompany.com/preferred-trust-company-consultation) - [Open an Account](https://preferredtrustcompany.com/self-directed-ira-applications/) - [About Preferred Trust](https://preferredtrustcompany.com/about-ira-custodian/) - [Client Testimonials](https://preferredtrustcompany.com/client-testimonials/) - SDIRA Resources Show submenu for SDIRA Resources - [Why Self-Direct?](https://preferredtrustcompany.com/why-self-directed-ira/) - [Inherited IRAs](https://preferredtrustcompany.com/inherited_iras/) - [Prohibited Transactions](https://preferredtrustcompany.com/prohibited_transactions/) - [IRA LLC](https://preferredtrustcompany.com/checkbook-ira-llc/) - [Frequently Asked Questions](https://preferredtrustcompany.com/faqs/) - [Retirement Industry Glossary](https://preferredtrustcompany.com/retirement-industry-glossary/) - [Media](https://preferredtrustcompany.com/media/) - [Blog](https://blog.preferredtrustcompany.com/blog) - Community Show submenu for Community - [Company Partnership](https://preferredtrustcompany.com/company-partnership/) - [Investment Resources](https://preferredtrustcompany.com/resources-new/) - [Investment Services](https://preferredtrustcompany.com/investment-services/) - Forms Show submenu for Forms - [Forms](https://preferredtrustcompany.com/forms/) - [Fee Schedule](https://preferredtrustcompany.com/fee-schedule/) - [Pay Your Fees](https://preferredtrustcompany.com/shop/) - [Login](https://icp.infovisa.com/0234) [All posts](https://blog.preferredtrustcompany.com/blog/all) June 26, 2024 # Common Mistakes When Investing in Real Property Through a SDIRA By  [Preferred Trust](https://blog.preferredtrustcompany.com/blog/author/preferred-trust)  ·  2 minute read An individual retirement account (IRA) typically allows investments in assets like stocks, bonds, and mutual funds. A [Self-Directed IRA (SDIRA)](https://preferredtrustcompany.com/why-self-directed-ira/) opens the door to alternative assets such as real estate. For some, a Self-Directed IRA could be a means to invest tax-advantaged retirement funds in real property. However, it’s essential to navigate the rules governing everything from property ownership and usage to managing expenses and profits to avoid IRS penalties. ## **What kind of real estate can my SD IRA hold?** A Self-Directed IRA can hold many different types of real estate investments. This can include land, single and multi-family homes, international property, boat docks, commercial properties, and more. The [custodian of your account](https://preferredtrustcompany.com/about-ira-custodian/) allows you to hold these alternative asset classes, ensuring compliance with IRS regulations. It’s crucial to understand the rules and potential pitfalls to [maximize the benefits](https://blog.preferredtrustcompany.com/blog/real-estate-investment-sdira) and avoid penalties. ## **Property Title** [Real property in a Self-directed IRA](https://blog.preferredtrustcompany.com/blog/blog/3-tips-to-know-when-buying-real-estate-with-your-self-directed-ira) is owned by the account, not personally by you. Ownership documents must reflect the IRA as the owner. Often, we receive documents for the purchase of a property in the name of the client, not the account. Updating the property ownership requires an addendum and can delay funding or even cause the seller to reconsider. It is important to communicate with your SD IRA custodian prior to making an offer on a property to ensure that you don’t disqualify your account or worse, lose the investment opportunity. ## **Expenses and Income** All property-related expenses and income must go through your IRA. You cannot use personal funds to pay for expenses incurred by property owned by your IRA. This is an all-too-common occurrence. All invoices should be sent to the Custodian for payment. Likewise, all income, including rental income, and sale proceeds must be received by the Custodian for the benefit of the IRA. ## **Usage Limitations** The property cannot be used by the account owner or any disqualified persons. [Disqualified persons to your IRA](https://blog.preferredtrustcompany.com/blog/disqualified-persons) include yourself, your spouse, any children, parents, and grandparents. It may seem like a good idea to allow your college bound son or daughter to live in the IRA owned property, however, you may end up with a rather large tax bill if the IRS finds out. ## **DIY Restrictions** Repairs and maintenance must be paid for by they IRA, not performed by you or any disqualified person. The IRS frowns upon your initiative to act in the capacity of maintenance man (or woman) of your investment property. ## **Prior Ownership** You cannot sell property you already own to your IRA and vice versa. Your IRA owned property cannot be sold to you personally. You also cannot be your own realtor and make a commission from the sale. ## **Not Being Engaged** Owning an investment property in your IRA is not a “set it and forget it” investment. As the account owner, you are responsible for ensuring that the IRA pays the most important expenses such as the property taxes and liability insurance. The Custodian will require your authorization to pay for repair work and maintenance on the property. Ensuring rental income is being received on a regular basis is your responsibility. Being in regular contact with the property manager is also important to ensure ongoing compliance. A SD IRA can be a powerful tool for investing in real estate, offering diversification and potential tax advantages, if you don’t succumb to common mistakes! Interested in diversifying your portfolio with real estate through a Self-Directed IRA? Contact Preferred Trust today to get started! Schedule a Consultation: [https://info.preferredtrustcompany.com/preferred-trust-consultation](https://info.preferredtrustcompany.com/preferred-trust-consultation)   Share: [facebook-f icon](http://www.facebook.com/share.php?u=https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira) [linkedin-in icon](http://www.linkedin.com/shareArticle?mini=true&url=https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira) [twitter icon](https://twitter.com/intent/tweet?url=https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira) [pinterest-p icon](http://pinterest.com/pin/create/link/?url=https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira) [envelope icon](mailto:?body=https://blog.preferredtrustcompany.com/blog/common-mistakes-investing-real-property-sdira) ## Related posts [![Business owner looking out window with an open sign in the window](https://blog.preferredtrustcompany.com/hubfs/PTC%20Blog%20%20IRA%20for%20Home%20purchase%209.26.25%201200x628.png)](https://blog.preferredtrustcompany.com/blog/ira-real-estate-home-purchase) [Blog](https://blog.preferredtrustcompany.com/blog/tag/blog) ### [Using an IRA for Home Purchase](https://blog.preferredtrustcompany.com/blog/ira-real-estate-home-purchase) [![](https://blog.preferredtrustcompany.com/hubfs/iStock-184098536.jpg)](https://blog.preferredtrustcompany.com/blog/blog/real-property-ira-account-minimum-balance-requirements) ### [IRA Minimum Balance Requirements for Real Property](https://blog.preferredtrustcompany.com/blog/blog/real-property-ira-account-minimum-balance-requirements) [![](https://blog.preferredtrustcompany.com/hubfs/Mistake%20Img.webp)](https://blog.preferredtrustcompany.com/blog/blog/top-5-rental-property-investor-mistakes-in-an-ira-and-how-to-avoid-them) ### [Top 5 Mistakes: Rental Properties in an IRA (And How to Avoid Them)](https://blog.preferredtrustcompany.com/blog/blog/top-5-rental-property-investor-mistakes-in-an-ira-and-how-to-avoid-them) ![White Horizontal Logo PNG cropped-1](https://blog.preferredtrustcompany.com/hs-fs/hubfs/White%20Horizontal%20Logo%20PNG%20cropped-1.png?width=250&height=67&name=White%20Horizontal%20Logo%20PNG%20cropped-1.png "White Horizontal Logo PNG cropped-1")  Specialist self-directed IRA custodian for alternative investment sponsors and individual investors.  [702-998-7892](tel:702-998-7892) [linkedin-in icon](https://www.linkedin.com/company/preferredtrust) [youtube icon](https://www.youtube.com/@preferredtrust) ##### For Investors - [Open an Account](https://preferredtrustcompany.com/self-directed-ira-applications/) - [Fee Schedule](https://preferredtrustcompany.com/fee-schedule/) - [Investor FAQs](https://www.preferredtrustcompany.com/faqs) ##### Investment Options - [Precious Metals](https://www.preferredtrustcompany.com/precious-metals-2/) - [Digital Assets](https://www.preferredtrustcompany.com/digital-currency/) ##### Client Tools - [Client Portal](https://icp.infovisa.com/0234) - [Forms Library](https://www.preferredtrustcompany.com/forms/) - [Contact Support](https://www.preferredtrustcompany.com/contact-us/) - [Blog](https://info.preferredtrustcompany.com/blog) - [IRA Rules](https://www.preferredtrustcompany.com/inherited_iras/) ##### Company - [About](https://www.preferredtrustcompany.com/about-ira-custodian/) - [Contact Us](https://www.preferredtrustcompany.com/contact-us/) --- Preferred Trust Company performs the duties of a directed (passive) custodian and does not provide due diligence to third parties regarding prospective investments, platforms, sponsors, dealers, or service providers. 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