Investing in Vacation Property through Your Self-Directed IRA?

Published on July 30, 2015

Don’t Forget to Factor in the Maintenance Costs!

Summer vacations mean going to the beach or up to the mountains for many people, and renting a condo or a house is a popular option over staying in a hotel. There’s a chance that the property you’re renting for your vacation is someone else’s real estate investment … one that could be made through a self-directed IRA.

Purchasing a rental vacation property through your self-directed retirement plan is a bit different and comes with its own set of rules (see our page about real estate IRAs for the ins and outs of these transactions). However, vacation homes as investments (to be used by others) can be a great way to build up your retirement assets.

Real estate is the most popular investment class to include in a self-directed retirement plan. In 2014, 1.02 million homes of all kinds were purchased as investments, according to the National Association of Realtors. Purchasing a second home is a popular investment (and lifestyle) strategy and has been on the rise in recent years.

Many of these investments are vacation rental properties meant to provide an income stream over the years to account holders. When made as a self-directed investment, these properties may not be used by the account holder and certain other individuals (disqualified individuals) and are meant to be rental income producers to build up retirement savings.

However, that real estate investment is not all about the income it can produce. Since all income and expenses related to an asset must flow through the self-directed retirement account, investors are wise to do their homework and research the associated maintenance costs of that real estate.


If your investment is a condo, find out what the ongoing maintenance fees are for landscape maintenance, garbage pickup, repairs and other common area charges. If your second-home investment is not a condominium (such as a lakefront cabin or mountain retreat), you’ll need to set aside funds within the IRA to cover expenses such as hiring gardeners, painters, electricians, plumbers, and handymen. Depending on where the property is located, you will have to pay for snow removal. Other costs to consider are a security system (and central monitoring), the services of a property manager, and cleanup or remediation if the property is in a flood zone.


Don’t forget the homeowners insurance on the investment property, or flood or hurricane insurance if that is necessary.


The self-directed IRA will pay all the associated real estate taxes on the investment property so make sure that the rental income it produces covers this expense, or that you have adequately funded the retirement account.

Enjoy tax-advantaged retirement savings

Thinking about investing in rental property through your self-directed IRA? There’s still time to get in on the summer vacation period—or think ahead to ski season up north or a sunbird haven in the south. Investing in vacation property within your self-directed IRA enables you to earn tax-free or tax-deferred income within your retirement plan, depending on whether you have a Traditional or Roth IRA.

Either way, these self-directed retirement plans have all the same tax advantages of their regular counterparts … and a much broader array of allowable investments to choose from (like real estate).

You can read more about what’s allowed and how to transact self-directed investments in our white paper. You may also contact one of our helpful professionals to get answers to your questions at or (888) 857-8058.

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