Five questions to ask before buying real estate with retirement money

The biggest mistakes in self-directed IRA real estate do not happen at the closing table. They happen weeks earlier, when someone falls in love with a property before checking whether the deal can legally exist. The fix is boring and effective: ask five questions before you get emotionally invested, and let the answers filter the search.

1. Is my money actually eligible to move?

Not all retirement money can be rolled into a self-directed IRA, and not all of it can move right now. Funds in a current employer's plan are often locked while you still work there. Old 401(k)s, former employer plans, and existing IRAs are usually the candidates. The plan administrator can tell you what your plan allows, and a custodian can tell you what they can receive. Until both answers are in, everything else is theoretical.

2. Who would use the property, ever?

This question removes more properties than any other. If you, your spouse, your parents, your children, or certain other disqualified persons would use the property in any way, the deal has a problem no matter how good the numbers look. A cottage your family would visit is not an IRA candidate. A rental duplex across town, leased to unrelated tenants, might be. Be brutally honest here, because the rules will be.

3. Can the IRA carry the property alone?

Every expense of an IRA-owned property must be paid from the IRA: taxes, insurance, repairs, the furnace that dies in February. If the account would be stretched thin after the purchase, an unexpected expense becomes a real problem, because you cannot simply cover it from your personal checking account. A good screening step is to ask what reserve remains after closing and whether realistic rent covers realistic costs with room to spare.

4. How would the deal be financed?

If the IRA cannot pay cash, financing must generally be a non-recourse loan, which means the lender can only look to the property itself, never to you personally. Fewer lenders offer these loans, down payments are typically larger, and debt-financed property may create taxable income inside the IRA. None of that kills a deal by itself, but it must be understood and priced in before the offer, not after.

5. Who is on my team?

A self-directed IRA purchase involves a custodian who administers the account, a CPA who understands the tax side, an attorney for the legal structure, and an agent who knows both the local market and the boundaries of these deals. If any seat is empty, fill it before you shop. The team is not overhead. It is the mechanism that keeps a good idea from becoming an expensive lesson.

Educational information only, not legal, tax, or investment advice. Every one of these questions ends with your own custodian, CPA, and attorney, whose answers depend on your specific situation.

What this looks like in practice

When someone calls Rennie about a property, these five questions are the first conversation, usually before anyone drives anywhere. Sometimes the answer is that the property does not fit, and hearing that early is a gift. Sometimes the answer is that it might fit, pending the custodian's review, and then the ordinary work of real estate begins: inspections, comparables, and negotiation, all inside lines that were drawn before the search started.