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Investor Insights Blog|Investing in Short-Term Rentals With Your Self-Directed Retirement Account

Real Estate

Investing in Short-Term Rentals With Your Self-Directed Retirement Account

Recently, there has been a lot of interest and allure around investing in short-term rental properties and posting them on platforms such as Airbnb. If you currently don’t own any short-term rentals and haven’t done any prior research into this investment strategy, you might be wondering: What exactly are short-term rentals? Is it possible to use an Equity Trust self-directed IRA to purchase and maintain a short-term rental, using an Airbnb or another platform? Is this investment strategy right for me?

What’s the difference between a short-term and long-term rental?

If the property is rented at an average of seven days or less, this is generally considered a short-term rental. If the property owner/manager is offering additional services (ex. access to a local spa, swimming facilities, etc.) and the average stay is 30 days or less, they could still fall under the classification of “short-term rental”.

A conventional rental property, which is also known as a long-term rental, is where a tenant signs a lease and pays rent monthly. Investing in long-term rental properties is a very common real estate investment strategy due to the consistent cash flow as well as the long-term stability it typically offers.

Video: Short Term Rental Estimator for Real Estate Investors

Short-term rentals, if defined as such, must be insured differently than long-term rentals. There can be “hotel tax” assessed with a short-term rental. This can depend on the county, so investors must research the market they are investing in to determine the applicable tax treatment.

Why have investors been investing in short-term rentals?

There are many reasons why investors have been looking into this real estate investment strategy. Depending on the area that you live in, short-term rentals could potentially be more profitable than long-term rental properties.

“A well-booked Airbnb rental will be much more advantageous than renting the same unit to a single tenant for a long-term rental,” said Deepasha Kakkar, the founder and CEO of Crackitt, in an article published by FortuneBuliders. “Rather than relying on a single long-term tenant with a fixed monthly payment, you can charge higher nightly rates based on your location and the reputation of your renting space as proven by numerous rental reviews left by your previous tenants.”

In addition, consider this example from Rocket Mortgage: “Let’s say you want to rent out a one-bedroom apartment in Los Angeles. As of March 2022, the average monthly cost of that apartment is $2,563, meaning you could make roughly $30,000 if your tenant signs a 12-month lease. According to AirDNA, the average daily rate for an Airbnb in Los Angeles is just over $190, with units typically occupied 67 percent of the year. This means you could make over $46,000 off your Airbnb – a significant $16,000 more than you would through traditional renting.”

Another reason why investors have been looking into this real estate investment strategy is the diversity of tenants. With long-term rental investments, you are locked in with a tenant for a certain amount of time. If that tenant is financially responsible and follows through with the lease, there is no issue. If the tenant is not consistent with rent payments or breaks the lease, your flow of income will inevitably be impacted negatively.

However, with short-term rental investments, you are allowed to be more selective with tenants and can charge tenants on a per-night basis.

Is it possible to purchase a short-term rental with a self-directed IRA?

Yes, it’s possible to purchase a real estate investment, such as a short-term rental, with your retirement funds. Many investors utilize a self-directed IRA, self-directed Roth IRA, or other tax-advantaged account to invest in real estate.

To make the process easier, using a property manager to oversee may be an option for short-term rental investors utilizing a self-directed IRA.

There are unique rules to be aware of when investing in real estate with retirement funds: learn more.

Self-Directed IRA Master Course: Real Estate

What are the benefits to investing in a short-term rental property with a self-directed IRA?

There are plenty of benefits that come from investing in a short-term rental property with a self-directed IRA. One of the most appealing benefits is that you keep more of what you earn from your property investment. With an investment made through a self-directed IRA, your profits could be tax-free or tax deferred.

Another notable benefit is the diversification of your investment portfolio. Utilizing a self-directed IRA to invest in a short-term rental property, such as an Airbnb property, allows you to gain exposure to another sector that most retirement accounts have limited to no presence in or a limited presence. The performance of an investment inreal estate is also not directly tied to stock market performance.

In addition, with an Equity Trust self-directed account, real estate investors can utilize Expense Pass. Expense Pass is a prepaid debit card that allows real estate investors to pay for expenses associated with their real estate investment with ease.

Investor story – short-term rentals and more

Hear how Andrew went from investing in residential fix-and-flips and inner-city turnkey properties to overseas investors, notes, tax liens, Airbnb properties, land contracts, and more with his IRA. He has simplified his investments recently and has found success with Airbnbs and medical rentals.



Am I restricted to only purchasing residential property with my IRA?

You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.


If I invested in a rental property with my IRA, how does the rental income get into my account?

Rental payments are sent to Equity Trust for the benefit of (FBO) your IRA. The checks or money order should be made payable to: “Equity Trust Company Custodian FBO [Your Name] IRA.”

Once received, the checks or money orders are deposited into your IRA. All checks must be sent to Equity Trust with a payment coupon.

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