In this instructional video, CPA‑attorney and real‑estate investor Mark J. Kohler explains how investors can use self‑directed retirement accounts (IRA, Roth IRA, 401(k), HSA) to purchase actual rental property—not just REITs or stocks. He debunks the common myth that the IRS forbids such investments, clarifying that broker‑imposed restrictions, not tax law, are the barrier. Kohler walks viewers through the entire process: selecting the type of property that matches the investor’s expertise; opening a self‑directed custodian or trust account and rolling over existing retirement funds without tax or penalty; forming a special IRA‑owned LLC that complies with IRS rules; funding that LLC and establishing a bank account; conducting the acquisition (due diligence, offers, closing) using the LLC; adhering to prohibited‑transaction rules that bar the investor, spouse, children, parents, and their spouses from benefiting directly; maintaining the LLC with annual tax filings and custodian reporting; and handling exit strategies—selling the property or reinvesting cash flow back into the IRA. Throughout, Kohler emphasizes the potential for higher returns (15‑25%+), diversification beyond traditional Wall Street assets, and the importance of education and compliance. He offers his firm (KKOS Lawyers) and Directed IRA as resources for setting up the structure.
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Did you know your IRA, Roth 401k or even HSA can buy real estate? Not a REIT, not just real estate stock, but actual rental property. And yet every week I hear business owners and investors say, I was told I can't do that. My broker or investment advisor said that was illegal. Well, it's not that you can't do it, it's that they can't do it and it's simply not true. I'm Mark J. Kohler, CPA attorney and real estate investor, and in this video I'm going to walk you through how to legally and profitably buy real estate inside your retirement, the rules you must follow, and the exact steps to make sure you don't trigger taxes or penalties. This is one of the most misunderstood strategies out there and when done correctly, it can dramatically change your retirement account value. Let's get into it now. Quickly. Let's hit a few points before we get into the how. Yes, your IRA, Roth 401K or HSA can own real estate. This surprises a lot of people, but the IRS has always allowed retirement accounts to own real estate. The law does not restrict your IRA to just stocks, bonds and mutual funds or ETFs. Those limitations come from brokerages, not the tax code. Because see, they don't get a commission when you go out and buy real estate. They want to manage a brokerage account. But when you go buy alternative assets, their brokerage may not function to provide a commission for their advisors. But when you self direct your account with a self directed custodian or trust company, you're simply choosing investment that Wall street doesn't sell. If someone says you can't, what they're really saying is they can't help you do it. Now why do investors want to invest in real estate inside their retirement accounts? The reason is simple. They make more money. They don't want to be stuck to just a 7, 8, 9 or even 10% return if they're lucky on a mutual fund or an etf. They want to invest in what they know. They want to invest in real estate developments, short term rentals, long term rentals, commercial rentals, real estate. They understand and can oftentimes have an ROI of 15, 20, 25% or more. They want to get the biggest return in retirement account and self directing allows them to do it. See, the bottom line is if you already invest in real estate personally and you understand it, it often makes more sense to let your retirement account do the same thing. Now it doesn't mean you don't invest in Wall street products as well. But why not do both? Now? One more point before we get into the how. And that's deciding on what type of real estate you want to invest in inside your retirement account. So make sure you're intentional that you really know what you want to invest in before you just start mo over to self direct. Do you like long term rentals, short term rentals, raw land, commercial property, even development or storage units? Invest in what you know. If you're a farmer, maybe you even invest in farmland. There is no best type of real estate for insider retirement account. It's again what you know best. Now let's talk about how to do this. Well, the first thing you have to do is open a self directed retirement account. Now this will typically be at a trust company like Directed IRA Trust company of which I'm a principal and on the board of directors. But this is a company that allows you to self direct your retirement account. You would roll over your IRA or 401k into a self directed account and on day two we call you up and say, what do you want to invest in? I'm going to talk more about that process. But this account is the key to unlocking this entire process. To buy real estate, your funds must be held with one of these custodians or trust companies. Merrill lynch or Fidelity is not going to allow for this. But when you transfer that money over, there's no penalty, there's no tax. Remember, you are not taking money out of your retirement account. You're simply moving your retirement account to a brokerage, if you will, or a custodian or trust company that allows you to self direct. And maybe another way to say it is you're not cashing out your IRA or your Roth or your 401k from an old job. You're simply upgrading the investments inside of it by allowing for different types of alternative assets. But let's move on to the next point. We've got to fund the account next. So we got to get money into this account. So if you have an IRA over here with 50 grand in it, you're going to open an IRA account and transfer that money. If you have a Roth account, you're going to open a Roth account. It's going to be account type for account type. And you're going to move that money over, sending a direction letter to your current custodian or brokerage account to move the money over to the trust account you just set up. And you also have to remember it's going to take A little time. Sometimes it could be done in a few days. Sometimes it's going to take a couple of weeks, depending on how cooperative your brokerage wants to be. But once you have the account open, it's just about moving the money over and again. Remember, there's no penalty or tax. You're just moving the money over to another bucket that gives you more freedom. Now, once you've funded the account, the next step is to create an LLC. Now this is a special type of LLC. You can't just open this up on legalzoom.com it's going to have special rules that allow for an IRA or a retirement account to be an owner. These LLCs are going to give you a lot of flexibility. You get to serve as the manager of this llc. You're going to be able to use that LLC to create faster transactions, clear asset separation between you and the retirement account. It even protects you as the manager from maybe some decisions that aren't done go so well. The LLC is giving you asset protection and will be holding your retirement funds. When we move that money over. The LLC will be holding the rental property or real estate. Now, the LLC must follow strict rules and you're going to be the manager, but cannot pay yourself as the manager of this llc. We're not setting up this LLC or this retirement plan project with your rental property so that you can get a job or get paid for your services. This is an arm's length transaction between your retirement account and you two different parties. The retirement account is going to form an LLC to go buy real estate. Now some of you may go, well, hold it. That's where I make money. I want to make money doing this. No, no. Remember, we're trying to make money for your retirement account. And even if you pay a property manager, your retirement account is going to have a much bigger return than just a plain old ETF or mutual fund. So be patient and know that you might have some extra costs you can't put in sweat equity, but oh my gosh, if you it pays off over and over again. Okay, so now that you've funded the account and formed the llc, now it's time to fund the LLC with that retirement account. So that LLC is going to have its own bank account. You're going to open that bank account and have the IRA or 401k, Roth, whatever you've got, move the amount of money into that llc. This is again kind of a funding letter or direction letter to the trust company to say, hey, I've decided what I want to do, I want you to fund this llc, then the LLC can go out and do business. Now, some people, after they've decided how much money they want to move over to their ira, have a second decision of, well, how much do I want to put in this llc? Maybe I want to form an LLC for long term rentals and an LLC for short term rentals. And you've got a lot of money to play with. You're fortunate, God bless you. But a lot of people are going to move that IRA money in its entirety into the LLC and start buying real estate. And they want to be thinking about what's the purchase price going to be, how much do I need in reserves, what am I going to do for rehab or furnishing and ongoing expenses? Because remember, you can't put more money in yourself. This isn't your rental property, this is your IRA's rental property. You want to make sure you have a cushion in that retirement account or the funded LLC to manage this rental property as it moves forward. So now that you've got the money in the llc, we are ready to buy some property. And this is going to be a typical situation. Like any acquisition for real estate. You've already decided what type of real estate you want to buy. You've got your money set aside for it. You're going to act as the manager of that LLC and go write offers, go do your due diligence, head towards closing, close on the property, and then hire your property manager or vendors or contractors to carry out the project, whatever it may be. Now, I want to now transition to a topic called prohibited transactions, because again, you can't benefit from these transactions or the property. We're trying to help just the IRA benefit from the project. So for example, you can't be the realtor on that acquisition. Your spouse cannot be the realtor, your kids cannot be the realtor, your parents cannot be the realtor, and that goes for being the property manager or staying in the property. These are called prohibited parties. And this is the biggest concept to understand these parties. You, your spouse, your kids, their spouses, or your parents and their spouse, those are prohibited parties. Frankly, the IRS doesn't trust you. They're going to say, hey, if you are benefiting any of these people, then you're taking advantage of your ira, and it wasn't built for that. Now, brothers and sisters are different and third parties are different, I guess. For example, I'd say if your IRA wants to buy a property and then hire me to be the realtor, or the property manager. Fine. But you can't hire your spouse to do it because you might pay them too much. You might also have them do it for free, which then benefits your IRA unjustly. Now in summary, there are a set of rules called prohibited transactions. But they are easy to understand and easy to comply with. Don't let some broker, dealer or investment advisor scare you or freak you out that you're going to cause some massive problem with your retirement account. You're not. Now let's review where we're at. You've got a retirement account that's been funded. Then you created an llc, funded the LLC and bought real estate. Well, we need to maintain that llc. It may have to file a tax return because it could have other partners than just your retirement account. You've got to maintain your IRA and do your annual reports to your trust company or custodian. Keep them informed as to what you're doing. But your LLC can move forward and own that property for many years to come. Sell the property and the money goes back to the ira. If it creates a lot of cash flow, you could deploy that money back to the ira or you could keep it in the LLC and buy another property. But you have to maintain this business as an investment of your IRA again of which you get to be the manager of. But I want you to feel confident that as you move forward with this investment strategy, you're going to know all the procedures to maintain the LLC and when it comes times to taking out cash or selling the property, how that money goes back to your IRA and the procedures to do it. But the real benefit here is that you've diversified your investments. Your retirement account is just not focused on Wall street investments is now more balanced. It's got real estate in it as well as maybe cryptocurrency or stocks, bonds and mutual funds. You can invest in anything you want. That's the beauty of self directing. And real wealth comes from balance. Not just one strategy. Anyone telling you there's only one right way to invest is selling you something. In summary, buying real estate inside your retirement account is not only legal, it's extremely powerful and incredib profitable, especially when done correctly. But the key is getting educated once you are understand all these steps in the process. Oh my gosh. It's a whole new world that opens up to you. Now if you want help setting this up properly, our team at KKOS lawyers again will help guide you through it as a lawyer representing you. Or you can again get started immediately at directed IRA and get that account open and start moving money over there. Then between our podcast and our books and articles and the support of the law firm, we can get you off to the races very, very affordably. And you're investing in real estate sooner than you thought. Thanks for watching. I'm Mark J. Kohler, and I'll see you in the next video.
