Self-directed IRAs (SDIRAs) open the door to alternative investments like multifamily real estate, giving high-net-worth (HNW) investors more control, diversification, and long-term growth potential than traditional retirement accounts. But with greater flexibility comes greater responsibility. The IRS imposes strict rules that, if violated, can trigger serious consequences, up to and including disqualification of the entire IRA. [1]
SDIRA compliance requires more than just a passing understanding. RIAs and investors alike must navigate these regulations with precision to fully leverage the benefits of multifamily investing within a retirement account without running afoul of the rules.
In this article, we clearly and practically break down five of the most critical SDIRA regulations every multifamily investor should know, focusing on protecting capital and maximizing long-term outcomes.
RULE NO. 1 | NO SELF-DEALING: PERSONAL BENEFIT IS PROHIBITED
Self-dealing occurs when an IRA owner or related party benefits personally from the IRA’s assets at the expense of their fiduciary duty. This includes performing work on IRA-owned real estate (e.g., painting, repairs), using IRA funds to invest in a personal or family business, or borrowing from the IRA or lending to disqualified persons. For example, if a client owns a rental property in their SDIRA and decides to manage or repair the property personally, this is a prohibited transaction, even if unpaid. [1][2][3]
The IRA must operate independently of the account holder’s personal finances or efforts. Even a minor personal benefit (like fixing a leaky faucet) violates IRS rules. Violations can disqualify the entire IRA and trigger full taxation. [1][2][3]
RULE NO. 2 | NO TRANSACTIONS WITH DISQUALIFIED INDIVIDUALS
The IRS strictly prohibits SDIRA transactions with disqualified individuals, including the IRA owner and their spouse, ancestors (parents, grandparents), lineal descendants (children, grandchildren), and their spouses, as well as fiduciaries, advisors, and specific business entities controlled by the individuals listed above. [1][2][4] Therefore, your client’s SDIRA cannot purchase a home from their father or rent a property to their daughter, even at fair market value. Everything must go through the custodian to prevent investors from violating these strict guidelines. [1][3]
The key takeaway here is that disqualified persons are prohibited from transacting with the IRA in any capacity. Clients must avoid investing in businesses or partnerships involving these parties, and RIAs should carefully screen entities and relationships for compliance. [1][2]
RULE NO. 3 | NO ACTIVE ROLES OR PERSONAL GUARANTEES
Investors may not personally manage IRA-owned businesses or real estate, guarantee loans (all financing must be non-recourse), sign contracts, or take on personal liability for IRA investments. This is because the IRA is a separate legal entity and must act through its custodian. [1][2]
Only non-recourse financing is allowed in SDIRA real estate deals. In other words, investors cannot take an active management role in IRA-owned property. SDIRA investments must remain passive and third-party managed. [1][3][5]
RULE NO. 4 | UBIT & UFDI: TAXES YOU NEED TO KNOW
Unrelated Business Income Tax (UBIT) is triggered when the IRA earns income from a business or service, rather than passive investments. Unrelated Debt-Financed Income (UDFI) is a type of UBIT that applies when the IRA uses leverage (debt) to acquire property. The income proportional to the debt is taxable. For example, if 50% of a property purchase is debt-financed, then 50% of the net income is subject to UDFI tax. These taxes are then reported on IRS Form 990-T. [1][2][5]
UBIT and UDFI can reduce after-tax returns, which is why income derived from debt within an IRA must be tracked and reported. Critically, filing Form 990-T also allows the IRA to carry forward losses to offset future gains, thereby helping to minimize the tax impact over time. Some products include a UBIT blocker structure to mitigate or eliminate this exposure, while others do not, making it critical for RIAs to evaluate during diligence. For example, the BAM Preferred Credit Fund is intentionally structured to prevent UBIT from applying, ensuring income is delivered to investors without the added layer of tax complexity common in real estate strategies that don’t include UBIT blockers. RIAs should also ensure that clients work with CPAs familiar with SDIRA tax filings; otherwise, missed filings can result in the forfeiture of loss carryforwards and unnecessarily diminish returns. Form 990-T is key. Even so, the long-term return potential of alternatives like real estate often outweighs these tax considerations compared to lower-yielding traditional assets. [1][2][5]
RULE NO. 5 | PROHIBITED VS. PERMITTED INVESTMENTS
| Prohibited | Permitted |
| ✖ Collectibles (art, wine, jewelry)
✖ Life insurance ✖ Property used by the account holder ✖ Loans to disqualified persons ✖ Personally guaranteed loans [1][4] |
🗹 Real estate (residential, commercial, raw land)
🗹 Private equity 🗹 Precious metals (IRS-approved) 🗹 Notes and lending 🗹 Cryptocurrency 🗹 Stocks, bonds, mutual funds 🗹 Tax lien certificates 🗹 Private placements and limited partnerships [1][2] |
WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING
BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
This article is an excerpt from Multifamily Real Estate Funds: A Guide for RIAs. 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]: Multifamily Real Estate Funds: A Guide for RIAs. (2025). “Topic 4.3 | SDIRAs: Rules to Know for Multifamily Real Estate Investing.”
[2]: IRA Financial. (2025). “Essential Self-Directed IRA Rules: Dos and Don’ts.” https://www.irafinancial.com/blog/essential-self-directed-ira-rules/
[3]: Investopedia. (2024). “Using Your IRA to Buy Real Estate.” https://www.investopedia.com/articles/personal-finance/111615/using-your-ira-buy-investment-property.asp
[4]: Investopedia. (2025). “Self-Directed IRA (SDIRA): Rules, Investments, and How to Get Started.” https://www.investopedia.com/terms/s/self-directed-ira.asp
[5]: Forbes. (2020). “Self-Directed IRA Rules Investors Should Know.” https://www.forbes.com/councils/forbesfinancecouncil/2020/11/17/self-directed-ira-rules-investors-should-know/
