Real estate investing can be a lucrative endeavor, but what many investors don’t realize is that they can enter this space through their Individual Retirement Account (IRA), specifically, a Self-Directed IRA (SDIRA). [1]
All IRAs are technically self-directed – the account owner decides how to invest. In practice, though, some custodians only allow traditional securities like stocks, bonds, and exchange-traded funds (ETFs). A self-directed IRA refers to an IRA held with a custodian that allows individuals to invest in alternative assets such as real estate, precious metals, private equity, and more. [1]
In this article, we’ll explore the benefits of investing in private multifamily real estate through a self-directed IRA, comparing and contrasting key differences in the various investment strategies that accompany it and explaining how each account type can have a significant impact on investors’ long-term returns.
WHY INVEST IN REAL ESTATE THROUGH AN SDIRA?
A Self-Directed IRA (SDIRA) is a type of individual retirement account that gives investors more control and flexibility over their investment choices. [1]
With an SDIRA, you can invest in a broader range of assets, including:
- Real estate
- Private businesses
- Cryptocurrency
- Raw land
- Promissory notes
This approach offers investors the opportunity to diversify their portfolios and leverage the tax advantages of an IRA while investing in alternative assets like multifamily real estate. The following are a few advantages of investing in real estate through an SDIRA:
Tax Benefits: Real estate investments inside an SDIRA grow either tax-deferred (Traditional SDIRA) or tax-free (Roth SDIRA). All income and gains go back into the account without immediate tax liability, which can accelerate compound growth over time. [1]
Diversification: Real estate provides exposure to an asset class uncorrelated with the stock market, helping reduce portfolio risk. [1]
Control and Flexibility: SDIRAs allow investors to directly decide which real estate assets, including residential multifamily, commercial buildings, or undeveloped land, align with their investment interests. [1]
Potential for Higher Returns: Real estate can generate strong passive income and long-term appreciation, especially when investing in high-demand markets or value-add opportunities. [1]
Inflation Hedge: Property values and rents tend to increase with inflation, helping preserve your purchasing power. [1]
Keep in mind that SDIRAs are subject to strict IRS rules, and violations, such as prohibited transactions, can trigger penalties or disqualification of the IRA.
RISKS & LIMITATIONS OF INVESTING THROUGH AN SDIRA
Despite its benefits, SDIRA real estate investing has some limitations, the primary one being that there are no opportunities for a 1031 exchange or step-up in basis. While 1031 exchanges allow tax deferral in personal real estate investing, they do not apply within an IRA. Likewise, capital gains tax benefits and step-up in basis upon death don’t apply to IRA-held property.
Some of the rules regarding prohibited transactions and disqualified persons dictate that investors cannot: buy a property they already own, live in, or use the property personally, nor rent to or purchase from a disqualified person (e.g., spouse, parents, children, business they own). Violating these rules can result in the disqualification of the IRA.
SDIRAs require strict IRS compliance, including:
- Hiring a custodian to hold the account
- Using IRA funds for all expenses
- Ensuring all income flows back to the IRA
- Lack of Liquidity
Private multifamily real estate is not as liquid as public securities. Selling property takes time, which can complicate required minimum distributions (RMDs) later in life for Traditional IRAs.
HOW TO INVEST IN REAL ESTATE THROUGH AN SDIRA
If you are set on using a self-directed IRA for real estate investing, there are specific steps you need to take to get started:
1. Choose a Custodian
Not all custodians offer SDIRAs. Find one that:
- Specializes in alternative investments
- Understands real estate
- Facilitates transactions and maintains records [1]
2. Open and Fund the Account
You can:
- Transfer funds from an existing IRA
- Roll over funds from a 401(k)
- Make new contributions (up to IRS limits)
- Choose the account type (Traditional, Roth, etc.) [1]
3. Understand IRS Rules
Familiarize yourself with:
- Prohibited transactions
- Disqualified persons
- Rules on income and expense handling [1]
4. Identify an Investment Opportunity
Analyze potential portfolios based on:
- Market trends
- Rental income potential
- Condition and repair needs
- Property management requirements
You can invest in:
- Single-family or multifamily rentals
- Commercial property
- Raw land
- Real estate private placements (syndications) [1]
5. Make the Investment Through the IRA
- Submit documents to your custodian
- All earnest money and purchase funds must come from the IRA
- Title is held in the name of your IRA (e.g., “XYZ Trust Company FBO John Smith IRA”) [1]
6. Consider Professional Help
Because SDIRA rules are complex and mistakes can be costly, it’s highly recommended to:
- Work with a financial advisor or tax professional who specializes in retirement accounts
- Consult a real estate attorney if unsure about compliance [1]
TRADITIONAL VS. ROTH SDIRA
A Traditional SDIRA allows investors to contribute pre-tax dollars, lowering their current taxable income. All earnings and capital gains grow tax-deferred, but investors will owe income tax when they withdraw funds during retirement. Both Traditional and Roth SDIRAs may be subject to UBIT (unrelated business income tax) or UDFI (unrelated debt-financed income) when investing in debt-financed properties or operating businesses, which can reduce the tax efficiency of these accounts.
Traditional SDIRAs are often used by investors who expect to be in a lower tax bracket in retirement or prefer upfront tax deductions. This strategy makes sense when your client’s focus is on capital preservation, rather than aggressive growth. However, suppose the client is considering alternative investments, like real estate, oil & gas, or private placements. In that case, this approach might not fully unlock their potential due to UBIT and UDFI exposure. [2][3]
With a Roth SDIRA, investors contribute after-tax dollars, so there’s no immediate tax break. However, all qualified withdrawals (including gains and income) are completely tax-free—a powerful benefit if your client’s investments appreciate significantly.
Roth SDIRAs are ideal for investors who expect to be in a higher tax bracket in retirement, want tax-free income later in life, or have a long time horizon and are focused on high-growth strategies. [4]
This is especially compelling for investors putting money into private placements (e.g., real estate syndications, venture capital), alternative assets with strong upside potential, or oil and gas investments with speculative returns. [5]
INVESTING WITH BAM CAPITAL THROUGH AN SDIRA
Nearly every retirement account, including IRAs, Roth IRAs, and solo 401(k)s, can be self-directed and used to invest in real estate. Employer-sponsored plans like standard 401(k)s or 403(b)s do not generally allow real estate investing.
While BAM Capital does not provide financial or tax advice, the firm can help guide you toward the right professionals and offer access to multifamily investment opportunities through your self-directed retirement funds.
BAM Capital is not a fiduciary or licensed advisor. Please consult a qualified financial professional before making investment decisions.
WHAT IS MULTIFAMILY PRIVATE PLACEMENT (SYNDICATION)?
Investing in real estate through a self-directed IRA is a naturally complex process. If you want to invest in real estate and enjoy higher potential returns without going through the hassle of becoming an owner or operator, the ideal alternative might be multifamily syndication.
A multifamily private placement deal is when multiple investors pool their capital to purchase a single property or portfolio. Owners can accomplish this with almost any type of real estate property, but when done with a multifamily property, this is called multifamily private placement. [6]
Multifamily private placements are designed to solve the problem of direct ownership by giving investors all the benefits of multifamily investment properties without the burden or physical labor of managing these multifamily homes or communities directly. This structure provides access to institutional-quality real estate while the sponsor handles all the work. It can be a strategic approach if you want to invest in real estate while maintaining a passive role. In a private placement deal, depending on the deal structure, passive investors may earn income throughout the hold period or realize equity growth once the deal is done and the property is resold. [6]
WORK WITH BAM CAPITAL TO DIVERSIFY YOUR RETIREMENT PORTFOLIO
Investing in real estate through a self-directed IRA offers numerous benefits, including diversification of your retirement portfolio, tax advantages, and greater control and flexibility over your investments. By following the steps outlined in this article and keeping these tips in mind, you can invest in multifamily real estate through a self-directed IRA and strive to secure your financial future.
Choosing a trustworthy owner or operator with a proven track record for excellence is key. If you are an accredited investor interested in multifamily private placement, work with BAM Capital.
BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. The firm has been focusing on buying assets targeted as having strong profitability potential and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while helping to mitigate investor risk. To date, BAM Capital has successfully managed over $1.7 billion in assets across ~9,000 apartment units. [7]
Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member. [7]
For additional multifamily real estate insights, visit Pathways to Passive Wealth, BAM Capital’s new platform designed to make real estate investing more accessible, transparent, and achievable for aspiring and experienced investors.
SOURCES
[1]: Forbes. (2023). “How To Use A Self-Directed IRA For Real Estate Investing.” https://www.forbes.com/advisor/retirement/real-estate-ira/
[2]: 37th Parallel Properties. (n.d.). “The Case for Multifamily Real Estate in Your Self-Directed IRA.” https://37parallel.com/multifamily-real-estate-self-directed-ira/
[3]: American IRA. (n.d.). “Self-Directed IRAs vs Roth IRA: Exploring the Differences.” https://americanira.com/self-directed-ira-vs-roth-ira/
[4]: Forbes. (2024). “Best Roth IRA Investments.” https://www.forbes.com/advisor/retirement/best-roth-ira-investments/
[5]: IRA Financial. (2025). “How Self-Directed Roth IRAs Can Help You Build Generational Wealth.” https://www.irafinancial.com/blog/how-self-directed-roth-iras-can-help-you-build-generational-wealth/#:~:text=Investment%20Flexibility%20in%20Self%20Directed,including%20generating%20tax%2Dexempt%20income.
[6]: BAM Capital. (2025). “What is private placement?” https://bamcapital.com/what-is-private-placement/
[7]: BAM Capital. (2025). “Current Portfolio.” https://bamcapital.com/
