If you’re a real estate investor—or hope to become one—the 21st Century Road to Housing Act could make investment properties more accessible. And you may be able to purchase them through a tax-advantaged retirement account, such as a self-directed IRA.
Starting Jan. 7, 2027, the law prohibits large institutional investors that control 350 or more single-family homes from acquiring additional single-family homes unless they qualify for an exemption.
“The goal is to reduce competition from large Wall Street investors and give individuals a better chance to buy investment properties,” says Adam Bergman, founder of IRA Financial in Miami Beach, FL.
If the law does create more opportunities for individual investors, using an IRA to invest in real estate could be an attractive long-term wealth-building strategy you might want to explore.
What the new law could mean for real estate and retirement investors
According to Bergman, many current and prospective investors are excited about what this legislation could mean.
Many believe that if institutional investors pull back, there could be more inventory, fewer bidding wars, and better buying opportunities for long-term investors.
“While no one can predict exactly how the market will respond, I do think this legislation has the potential to create opportunities that haven’t existed in years,” Bergman explains.
Also, using a self-directed IRA to buy an investment property is attractive from a tax planning standpoint.
“Investing in properties through a tax-advantaged retirement account can allow rental income and appreciation to grow tax-deferred or potentially tax-free,” adds Bergman.
It’s important to note that the federal Road to Housing Act does not create state-by-state exceptions to the institutional investor restrictions. Instead, it establishes a single nationwide standard that applies across all states.
That said, the act does contain several federal statutory exceptions, including purchases resulting from foreclosure and deeds in lieu of foreclosure, or loan servicing activities.
Other exclusions include certain reorganizations or restructurings of existing ownership, and transfers between qualifying large institutional investors under limited circumstances.
When to tap into an IRA for an investment property
If you want to use your IRA to buy an investment property, you’ll have to decide whether to do so before or after retirement.
Bergman recommends leveraging this strategy before retirement, especially if you have a long investment horizon.
“A pre-tax IRA is designed for long-term investing, and because withdrawals before age 59½ generally trigger income tax and potentially a 10% early distribution penalty, most investors are better off leaving those funds invested,” Bergman explains.
With the Road to Housing Act potentially creating more buying opportunities as institutional investors step back from the market, self-directed IRA investors with substantial funds may be in an especially strong position to acquire attractive properties without relying on financing or competing against large Wall Street buyers.
The analysis changes once you reach retirement.
At that point, liquidity becomes much more important. Traditional IRA owners generally must begin taking required minimum distributions (RMDs) beginning at age 73, and many retirees also rely on IRA assets to fund living expenses.
“Since real estate is an illiquid asset, owning too much of it inside an IRA during retirement can create challenges if you need cash to satisfy an RMD or cover personal expenses. That’s why I often tell clients to think not only about what they buy, but also when they buy it,” Bergman says.
Using retirement funds to acquire real estate before retirement allows more time for appreciation and rental income to compound, while entering retirement with sufficient liquid assets can make managing RMDs and retirement cash flow much easier.
How traditional vs. Roth IRAs compare for real estate investing
Both traditional and Roth IRAs can be excellent vehicles for real estate investing, but they offer different tax benefits.
With a traditional IRA, contributions may be tax-deductible, investments grow tax-deferred, and taxes are generally paid when funds are withdrawn in retirement. A Roth IRA is different.
Contributions are made with after-tax dollars, but if the rules are satisfied, all future appreciation and qualified distributions are completely tax-free.
“For investors who believe their real estate will appreciate significantly over time, a Roth IRA can be especially powerful because all of that future growth may never be subject to federal income tax,” says Bergman.
Using a self-directed IRA to purchase real estate also offers important advantages over buying property with taxable funds. Rental income and gains from the sale of the property generally remain inside the IRA without current taxation, allowing more capital to stay invested and compound over time.
That tax-deferred or potentially tax-free growth can produce significantly greater long-term wealth than investing in a taxable account, particularly for investors who plan to hold property for many years.
“The primary trade-off is that an IRA is a tax-exempt retirement account, so you don’t receive many of the tax benefits available to taxable real estate investors,” Bergman explains.
For example, you generally cannot deduct depreciation, operating losses, or other real estate tax deductions on your personal tax return because those benefits remain inside the IRA.
“In my view, however, for long-term investors focused on appreciation and retirement savings, the ability to defer—or completely eliminate in the case of a Roth IRA—tax on years of rental income and appreciation often outweighs the loss of those current tax deductions,” says Bergman.
It’s important to think about real estate as a diversification tool for their retirement portfolio, not just another investment.
“Most retirement accounts are heavily concentrated in stocks and bonds, but adding real estate can provide exposure to a different asset class that doesn’t always move in tandem with the public markets,” says Bergman.
In addition, because retirement accounts are designed for long-term investing, they are well suited to take advantage of the illiquidity premium—the idea that investors who are willing to own less liquid assets, such as private real estate, may earn higher long-term returns than investors who focus only on publicly traded investments.
“While higher returns are never guaranteed, I believe combining diversification with the potential benefits of the illiquidity premium is one of the most compelling reasons to consider real estate as part of a long-term retirement strategy,” Bergman adds.
