When most people think about investing in real estate, they often consider purchasing a rental property in their personal name or through an entity like an LLC. This approach is familiar and seems to make sense — after all, owning rental properties personally or through an investment company gives you control, structure for partnerships, some liability protection, potential tax advantages, monthly cash flow and more. But what if there was another way to invest in real estate, one that leverages your existing retirement funds and allows for significant long-term growth — often tax-deferred or tax-free?
Many people are discovering the power of self-directed 401k or IRA real estate investing, especially right here in North Texas. It’s a powerful but lesser-known investment strategy that allows you to purchase real estate using your retirement account, offering the dual benefit of real estate cash flow and the retirement account’s tax advantages. If you’ve never heard of this before, you’re not alone — most retirement account holders don’t realize this is even an option.
Yes, you read that right: you can own real estate inside your self-directed 401k / Traditional IRA and Roth IRA. Instead of investing in mutual funds, stocks, or bonds — the “traditional” route — you can direct those funds into tangible, income-producing properties.
Why Real Estate? Why North Texas?
North Texas is one of the fastest-growing regions in the country. With a booming economy, increasing job opportunities, expanding infrastructure, and a steady stream of population growth, the North Texas real estate market is thriving. Rental properties in this area are in high demand, which means there’s a strong opportunity for consistent cash flow and long-term appreciation. Whether it’s single-family homes, small multifamily buildings, or even commercial properties, North Texas provides a compelling environment for real estate investment.
Pair that market strength with the long-term vision of retirement investing, and the result is an opportunity that could help you grow your nest egg more predictably — and more securely — than relying entirely on the volatile stock market.
What Is a Self-Directed Account?
A self-directed 401k or self directed IRA are types of retirement accounts that gives you more control over the investment choices within the account. Unlike a typical 401k or IRA that limits you to mutual funds or a pre-selected menu of stocks, a self-directed retirement account lets you invest in alternative assets, including real estate.
This is where things get interesting: instead of watching the stock market swing up and down — sometimes dramatically — you can use your retirement funds to purchase something tangible and stable like a rental home in North Texas. That property generates income, and the income goes directly back into your 401k or IRA, growing your retirement account without additional out-of-pocket contributions.
How Does It Work?
First, you’ll need to make sure your retirement account is eligible and transferred to a self-directed custodian — a company that allows you to hold real estate inside your 401k or IRA. Not all custodians do this, so it’s important to work with one that specializes in alternative asset investments.
One that I use and highly recommend is Heritage IRA. They have both IRA accounts and 401K accounts.
Once you’ve set up your self-directed 401k or IRA, here’s the basic process:
- Find a Property: Look for a cash-flowing rental or investment property in North Texas.
- Purchase It in the Name of Your Account: This is critical. The property must be titled in the name of your 401k (e.g., “XYZ Trust Company FBO [Your Name] 401k Plan”), not in your personal name. Same for an IRA.
- Fund the Purchase: Use the funds inside your retirement account to purchase the property. You can also cover expenses like property taxes, repairs, and management using these funds.
- Collect Rent into the 401k or IRA: All rental income goes back into your retirement account, not into your personal bank account.
- Let It Grow: That rental income accumulates in your retirement account, potentially tax-deferred or even tax-free depending on your 401k or IRA type (Traditional vs. Roth).
This is an incredibly tax-efficient way to grow your retirement fund, especially if the property is producing consistent monthly income.
Is This Strategy Right for You?
That depends on your financial goals and comfort level with real estate. But for many investors, the idea of holding cash-flowing assets in a retirement account is extremely attractive.
Think of it this way: most people contribute to their 401k through payroll deductions or employer matches. But by owning a rental property inside your 401k, it’s like getting an extra contribution every single month — rent paid by tenants that flows straight into your retirement plan. The same applies if you have funds in Traditional or Roth IRA’s. The ROTH is especially powerful because it grows tax free.
Even more powerful? The possibility that you could retire earlier than expected. With just a few well-performing rental properties held inside your self-directed account, you could hit your financial milestones faster than relying solely on market-based returns. Some investors are discovering that they no longer need to wait until 65 or 70 to retire — the cash flow from real estate accelerates the timeline.
What About Taxes?
The tax benefits are one of the major reasons investors pursue this strategy. Depending on whether you’re using a Traditional (tax-deferred) or a Roth (tax-free), the rental income and eventual gains from the property may either:
- Grow tax-deferred (you pay taxes when you withdraw in retirement), or
- Grow entirely tax-free (with Roth plans, as long as you follow distribution rules)
Either way, it’s a huge advantage over owning property in your personal name where rent and capital gains are fully taxed.
AS with all investment strategies – you MUST consult with a knowledgeable advisor or CPA before going this route. Laws change frequently.
How to Get Started
If you’re ready to explore this, here’s what to do:
- Talk to a Self-Directed Custodian: This is your first step. You’ll need to roll over your existing account into a self-directed account with a custodian who allows real estate investing. Heritage IRA and IRA Club are two of many.
- Find an Investment Property: Work with a local real estate expert to find the right cash-flowing opportunity in North Texas.
- Perform Due Diligence: Evaluate rental income, expenses, local market trends, and property management options.
- Purchase Through Your 401k or IRA: Follow the custodian’s guidelines and complete the transaction.
- Set Up Ongoing Management: Property management fees and costs can be paid from within the 401k or IRA itself.
WARNING: There are some pitfalls that you can encounter if you don’t adhere to some simple rules. Make sure you work closely with your custodian to stay compliant.
If you want ideas, introductions to experienced self-directed custodians, or help finding properties in North Texas that are investor-friendly, we’d love to help. Just call at Lonestar Partners at 469-689-4663.