How to Invest in a REIT using a Self-Directed IRA

How to invest in REITs

Originally Posted July 2021
Edited May 2024

Investing in real estate investment trusts (REITs) can be a great way to diversify your portfolio and add alternative investments to your retirement plan. There are three types of REITs: (i) publicly traded REITs, (ii) non-traded REITs, and (iii) private REITs. Unlike publicly traded REITs, which are listed on stock exchanges and subject to market fluctuations, non-traded REITs and private REITs are not publicly traded and typically offer lower short-term volatility.

Realty Mogul offers investors two non-traded REITs, which provide investors access to commercial real estate without the hassle of owning physical property. Investing in a REIT can be an attractive option for investors with self-directed IRAs. But how exactly do you invest in a REIT using a self-directed IRA? Let’s take a look.

REITs Explained

A popular investment for self-directed IRA holders is commercial real estate, and a common way to invest directly in commercial real estate is through a Real Estate Investment Trust (REIT). A REIT is a company that owns, operates, or finances income-producing real estate. REITS are typically known for their objective of regular distributions, as well as moderate long-term capital appreciation, though they may offer other potential benefits.

Public Versus Non-Traded REITs

Public and non-traded REITs are two types of real estate investment trusts that vary in their investment structure, availability, and liquidity. Public REITs can be bought and sold on stock exchanges during market hours, making them a more liquid investment option. Non-traded REITs, on the other hand, have limited liquidity, which means it may be challenging to sell shares quickly, especially in times of financial need.

Fees and expenses are another difference between the two types of investments. Non-traded REITs may have higher fees and expenses due to their structure and limited liquidity. Public REITs generally have lower fees and expenses because of their more accessible and liquid nature.

Investors should carefully consider these differences when choosing between public and non-traded REITs to determine which aligns best with their investment goals and risk tolerance.

Advantages of Non-Traded REITs

Non-traded REITs offer several potential benefits for investors as an investment option.

One of these is diversification, as they invest in various properties and sectors, which allows for the investment risk to be spread across different assets.

Non-traded REITs are not listed on any stock exchange, which means their shares are not directly subject to short-term stock market volatility. Non-traded REITs typically do not deal with daily price changes like publicly traded REITs, which allow the managers to focus on long-term objectives instead of focusing on daily price changes as a result of general volatility in the stock market.

Lastly, non-traded REITs often provide steady income through regular distributions, which can attract investors seeking a reliable income stream.

Benefits of Investing in a REIT

Investing in a REIT can offer several benefits to investors, including:


Equity REITs allow investors to diversify their portfolios by investing in various real estate properties across different asset classes, such as residential, commercial, retail, and industrial. This diversification may reduce the overall risk of real estate investing, as the earning potential is spread across multiple sectors.

Passive Income

By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends; thus, investing in either publicly traded or non-traded REITs has the potential to provide a steady income stream for investors through dividend payments, making them an attractive investment option for those seeking passive income.

Capital Appreciation

Real estate properties have the potential to appreciate over time due to factors such as rent inflation and increasing demand. As the value of the underlying properties owned by equity REITs increases, so can value of the REIT shares, offering the potential for capital appreciation and regular dividend payments.

Professional Management

Investing in REITs grants investors access to expert management teams experienced in selecting, managing, and maintaining real estate properties. This expertise ensures that the investments are managed efficiently, generating maximum value for shareholders while eliminating the burden of property management tasks for individual investors.

Tax Advantages

IRA accounts can be used to purchase publicly traded and non-traded REIT shares. By holding REIT shares within an IRA account, investors can defer taxes on both the capital gains and dividend income until they make withdrawals in retirement, which may improve the overall tax efficiency of the investment.

Inflation Hedge

Real estate investments like REITs have historically served as effective hedges against inflation. Property values and rental incomes often increase as inflation rises. This characteristic may make them attractive to an investor’s portfolio, particularly during times of economic uncertainty.

Self-Directed IRA Explained

A Self-Directed IRA (SDIRA) is a distinct category of retirement account in which you maintain total control over and responsibility for the investments in your account. This type of IRA allows you both greater control over managing your IRA assets and potentially more freedom in the investments you can make than most other IRAs offer.

With an SDIRA, you can invest directly in real estate, precious metals, private businesses, and other types of alternative assets, in which you generally cannot invest through conventional IRAs. If you have an old or abandoned 401(k) from a previous job gathering dust, you may want to contact the plan administrator to roll over your funds, so you can invest the money.

Benefits of Using a Self-Directed IRA to Invest in a REIT

For investors who want to maximize the benefits of investing in real estate while minimizing the risks, using an SDIRA to invest in a REIT could be the optimal solution.

First and foremost, using an SDIRA to invest in a REIT offers significant tax benefits, allowing investors to harness the power of tax-deferred or tax-free compounding.

Traditional IRA contributions are tax-deductible, and earnings within the account grow tax-deferred, meaning that investors will not have to pay taxes on capital gains, dividends, or interest until they withdraw the funds during retirement. Roth IRAs are funded with after-tax contributions, but earnings and qualified withdrawals are tax-free. Investing in a REIT through an IRA allows investment gains to compound without being reduced by taxes, potentially leading to significantly higher returns over the long term.

How to Invest in a REIT with a Self-Directed IRA

Depending on whether or not you already have an SDIRA set up, there are two main paths you can take to invest in REITs using your retirement funds:

How to Set Up an SDIRA to Invest in a REIT

(Option 1: If you do not have an SDIRA)

If you do not have an SDIRA currently set up, our team of professionals can help you get started by directing you to several custodians where you will be able to:

  1. Open a new account with a custodian;
  2. Fund the account by transferring funds from an existing retirement account and/or contributing this year’s election to the new account; and
  3. Use the funded account to invest in one or both of our REITs.

If you choose to open a new account with our preferred custodian, EquityTrust, opening an SDIRA and placing an investment is a straightforward process, which you may begin by selecting your investment of choice. We have created distinct REIT strategies with different investment objectives. The primary goal of INCOME REIT is diversification and income, whereas the aim of APARTMENT GROWTH REIT is growth and income through multifamily investments.

Equity Trust Company is a preferred custodian for Self-Directed IRA accounts and investments placed on the RealtyMogul platform. As the custodian, Equity Trust Company charges a one-time account set-up fee of $50 and an annual fee of $75 for investments made in the RealtyMogul Income REIT and/or RealtyMogul Apartment Growth REIT. See the Equity Trust Company Fee Schedule for more information.

(Option 2: If you already have an SDIRA)
If you already have an SDIRA established that you would like to use to place an investment, the first step is to find out who your custodian is or where your funds are held. Once you know where your SDIRA is maintained, our team can help you determine whether or not they will be able to accept an investment with us.

Suppose we determine that your custodian is compatible with our platform. In that case, you may begin your investment in either of our REITs with the objective of diversification and income (INCOME REIT) or growth and income through multifamily investments (APARTMENT GROWTH REIT).

If we cannot work with your existing custodian, you can still open an additional account with a different custodian. You can subsequently transfer funds from your current custodian into the new account or contribute this year’s election to the new account. We will facilitate the transfer or rollover process with your old custodian.

Ready to invest? Download our flyer, 5 Steps to Invest Your Retirement Funds in a REIT, for a simple guide on how to get started, or sign up here to become a member. There are risks to investing in REITs, including the loss of capital, so it is essential to understand any investment before allocating to it. As always, investors should understand the risks associated with real estate investing and that nothing is guaranteed.

This message is for informational purposes only and should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any security. All information in this message is qualified in its entirety by reference to the more complete information about the offering contained in the relevant REIT’s offering documents, including the relevant prospectus and supplements thereto, available electronically at and through the SEC’s EDGAR filing system. Any information contained herein has been secured from sources we believe are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. No part of this message is intended to be binding on RealtyMogul or its affiliates.

Investing in the REIT’s common shares is speculative and involves substantial risks. The payment of distributions is not guaranteed and may fluctuate. You should not invest unless you can sustain the risk of total loss of capital. Past performance is not indicative of future results. Before investing, please carefully review and consider the REIT’s relevant offering documents, including its prospectus, supplement thereto, and the “Risk Factors” identified therein, available under the offering documents section within resources at the RealtyMogul Income REIT website.

RealtyMogul is not a registered broker-dealer, investment adviser or crowdfunding portal, and RM Adviser does not provide any investment or other advice to any individual investors. Furthermore, RealtyMogul does not provide tax or accounting advice. We strongly recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity, including in the REITs.

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