Cash Out vs. Selling Your IRA Property: Comparing Your Options

Selling is the straightforward option. Your IRA lists the property, finds a buyer, closes the sale, and the proceeds go back into the IRA.

What you gain:

• Full liquidity: the entire sale price lands in your IRA
• No debt obligation, no monthly payments
• No more landlord responsibilities

What you give up:

• Future appreciation. If the property continues to grow in value, that upside is gone.
• Rental income. The monthly cash flow stops.
• Transaction costs. Real estate commissions (typically 5-6%), closing costs, and potential repair/staging expenses can reduce your proceeds by 8-10%.
• Time. Selling a property takes weeks to months. If you need cash quickly, the timeline may not work.

Inside a traditional IRA, the sale proceeds generally stay tax-deferred (no immediate capital gains tax). But in a Roth IRA, you're giving up tax-free growth on an appreciating asset. And once sold, you can't get the property back.

A non-recourse loan against your IRA property gives you cash while keeping the asset. The IRA borrows funds, using the property as collateral, and the loan proceeds go into the IRA.

What you gain:

• Liquidity without selling
• The property continues to appreciate inside your IRA
• Rental income continues (and can help cover loan payments)
• No real estate commissions or closing costs beyond loan origination
• Speed: loans can close faster than property sales

What it costs:

• Interest. Non-recourse IRA loans typically carry rates of 9-12%.
• Origination fees. Usually 2-3 points.
• UDFI tax. The debt may trigger Unrelated Debt-Financed Income tax on a portion of rental income. (See our UBIT/UDFI guide for details.)
• Repayment obligation. The IRA needs sufficient cash flow or reserves to make monthly payments and eventually repay the balloon.
• Risk. If the IRA can't repay, the lender can foreclose on the property (but only the property, since it's non-recourse).

Let's use an illustrative example. Your IRA holds a property worth $400,000, free and clear, generating $2,500/month in rent. You need $200,000 in liquidity.

Selling may be the better path when:

• You want to exit the property entirely (tired of being a landlord, the market is at a peak, or you want to diversify)
• The property needs significant capital expenditures your IRA can't cover
• You need more than 50% of the property's value in cash
• Your IRA doesn't have sufficient reserves to cover loan payments
• The rental income doesn't support the debt service
• You don't plan to hold the property long-term anyway

Borrowing may be the better path when:

• You want to keep the property for long-term appreciation
• You need a specific amount of cash that's well within 50% of the property's value
• The rental income can cover or significantly offset the loan payments
• Your IRA has adequate reserves beyond the loan payments
• You believe the property will continue to appreciate
• Speed matters: you need cash in weeks, not months
• You want to preserve the tax-deferred (or tax-free, in a Roth) growth of the asset

Selling gives you full liquidity but permanently ends the investment. Borrowing gives you partial liquidity while preserving the asset and its future returns. The right choice depends on how much cash you need, how long you want to hold the property, and whether your IRA can support the debt.

Neither option is universally better. But for IRA holders who want to keep a performing asset while accessing a defined amount of cash, a non-recourse loan is worth evaluating alongside a sale.

Talk to your CPA about the tax implications of each path (especially UDFI if you borrow), and consider your IRA's overall financial picture before deciding.