Real Estate Partnerships and the Self-Directed IRA

Real estate is one of the most popular assets for a Self-Directed IRA. But not every investor wants—or needs—to go it alone. With real estate partnerships, an IRA can expand investment opportunities, spread out risk, and take on projects that might be too large for a single investor. But of course we’re talking about IRAs here. There are some clear rules to follow.

At its simplest, a partnership allows multiple parties to pool their resources to buy and manage property. That much is clear. Maybe you’ll team up with other IRA holders. Maybe you’ll work alongside individual investors. Or maybe yo’ll be joining forces with an LLC. In each case, the goal is the same: combine capital and expertise to achieve results that might be harder to reach alone.

Why Partnerships Can Work Well in a Self-Directed IRA

Partnerships can be a practical way to scale up. Instead of limiting yourself to a single property within your IRA’s budget, you can join with others to purchase larger or more valuable properties. That can translate into better locations and more room for long-term appreciation.

There’s also a built-in way to share responsibilities. Your IRA is a passive investor: it can’t personally manage the property. But owning a share of a partnership structure may be different; your IRA can potentially own a share while someone else does work. (Note: consult a tax advisor for all of these questions.)

From a diversification standpoint, partnerships can allow you to hold a stake in multiple properties. This is sometimes preferable to tying up a large portion of your IRA funds in a single investment.

Staying Within the Rules

With all their benefits, partnerships inside a Self-Directed IRA also require careful attention to IRS guidelines. Pay attention! Your IRA can’t partner with you personally, with certain family members, or with entities you control. That means if you’re part of the deal outside the IRA, the IRA itself generally can’t participate. Go back to the drawing board.

Your custodian will help make sure the paperwork reflects the IRA’s role and that payments—whether for the purchase, maintenance, or eventual sale—are made directly to or from the IRA. This keeps the investment compliant and protects its tax-advantaged status.

Long-Term Strategy and Exit Planning

Ultimately, any choice you make in a retirement account depends on your goals. What do you want to achieve? What do you plan on doing with this IRA? And what about 5, 10 years down the road? Further?

Just like any investment, a real estate partnership in a Self-Directed IRA should start with a clear plan. Think about the timeline. Is the property intended for long-term rental income, or is it a fix-and-sell project? How will decisions be made among partners? What’s the plan for selling or refinancing, and how will profits be distributed?

An exit strategy is especially important in partnerships. It ensures everyone is on the same page about how and when the investment will wrap up, and it avoids disputes down the road.

When structured carefully, a partnership can be a smart way to bring more real estate into your Self-Directed IRA without overextending your account. It can broaden your opportunities, strengthen your portfolio, and let you share both the work and the rewards with other like-minded investors. If you’re curious about how a real estate partnership could fit into your retirement plans, American IRA can walk you through the process from start to finish. Call us at 866-7500-IRA or visit www.AmericanIRA.com to explore your options and see how a Self-Directed IRA can make partnership investing possible.