How to Use a Self-Directed IRA to Buy a Vacation Rental

A vacation rental can be more than just a charming place to stay. It can be a source of income, long-term appreciation, and really intelligent portfolio diversification. And with a Self-Directed IRA, it’s possible to hold that property inside a retirement account. But before you start daydreaming about using your IRA to buy a beach house or mountain cabin you’ll visit every year, here’s the first and most important rule: you can’t stay there. Not even once. When a property is owned by a Self-Directed IRA, it’s for investment purposes only—not personal use. But hopefully, you’ll be too busy enjoying the returns on this investment to worry about that.

What Makes Vacation Rentals Appealing in an IRA

In many parts of the country, short-term rentals have outperformed long-term leases in both occupancy and income. That makes them attractive to investors looking for cash flow, not just appreciation. If you know the market well, or you’ve identified an area with strong tourism demand, you may be able to generate reliable income through seasonal stays and holiday traffic.

That rental income flows directly back into the IRA, just like with any real estate investment inside a Self-Directed account. And because it’s tax-advantaged, you won’t pay income tax on that money each year. Instead, it grows inside the account until retirement—or in the case of a Roth IRA, possibly tax-free forever.

Vacation rentals also offer flexibility. You can hire a property manager to handle bookings and maintenance, or structure it as a more passive investment.

The Rules Around Personal Use and Disqualified Persons

As mentioned earlier, personal use of a property owned by your IRA is strictly prohibited. That means you can’t spend a weekend there, even if it’s vacant. You can’t let your kids stay there for a holiday. You can’t offer it to your parents for their anniversary trip. If a disqualified person uses the property—even briefly—it becomes a prohibited transaction. And that could disqualify your entire IRA.

This rule is one of the most common pitfalls in Self-Directed real estate. It’s tempting to blur the lines, especially when the property looks like a perfect getaway. But the IRS is very clear: the IRA must benefit exclusively from the investment—not from personal enjoyment.

So when you’re evaluating vacation rentals, view them with a purely financial lens. What’s the occupancy rate in that area? What are the local short-term rental regulations? Will it cash flow after management fees and maintenance? And how does it fit into your larger retirement strategy?

Choosing the Right Market and Property

If you’ve never managed a short-term rental before, you might want to start with a market that already has a strong infrastructure in place. Look for cities or towns with consistent tourism, established regulations, and a history of solid rental demand. That can reduce the risk of sudden rule changes or seasonal slumps.

Also, consider the durability of the property. Vacation rentals get more wear and tear than long-term leases. You’ll want to invest in something that holds up well with high turnover, or work with managers who can keep it in good shape. Keep in mind that all expenses—repairs, management, etc.—must be paid by the IRA, not your personal funds. So you’ll need to maintain enough liquidity in the account to cover those costs year to year. With good planning, a Self-Directed IRA can be a powerful vehicle for holding vacation rentals. Just make sure you follow the rules to the letter, and you’ll be in good shape. Get started by calling us at American IRA at 866-7500-IRA and open your IRA for investing today.