If you have ever thought about buying residential income property, but asked where the financing would come from, this article is for you. You’re not the first person to wonder that. Why not try using the money in your individual retirement account (IRA) or your 401K?

You’re probably asking yourself how that can happen. Not to worry, because there is a simple solution called a self directed IRA (or 401K). Using one of these very special accounts, you can direct your money into whatever kind of investment you like, even real estate.

Of course, there’s lots of good reasons to do this. Number one, your money grows tax deferred until you start withdrawing the money, usually at retirement, when your tax rate will most likely be lower than it is now. That means your money will grow faster, because the IRS is taking a hunk from every dollar.

Second, your self-directed retirement account will let you put your money where you are most comfortable – and where you know something. If real estate is your thing, why not invest your money there, instead of some mutual fund you know absolutely nothing about? How about buying a rental house in the neighborhood right next to yours?

Of course, you must follow the IRS rules for setting up such an account. Don’t worry, though, because the trustee you choose to manage the account will know the rules, and they will be able to advise you accordingly. Probably the primary rule is that the real estate must be owned and paid for completely by the retirement account, not by you individually.

This rule can increase your costs and aggravation a little, because you can’t just pay for things out of your own checkbook, or deposit rents received into your own account. It all has to go through the IRA or 401K, and that means you will need to pay fees to the account manager /trustee. Not convenient, but not a deal breaker either.

As with every other IRA or 401K, all of your capital is at risk. The nature of real estate investing is that it is possible to lose money. It’s rare, but it does happen. At least with a self-directed account, you control the investments, and therefore you can insure you don’t invest in money losers.

Finally, you should ask yourself if self directed retirement account investing in real estate is something you are interested in. It’s not hard to do, and it can be a truly excellent way to get started in the game of residential income property. Why leave all that money in the hands of other people who don’t understand your investing goals?