A self-directed IRA that holds real estate, also referred to as a "real estate IRA," is becoming an increasingly popular way individuals are choosing to diversify their retirement portfolios. The easiest way to add real estate to your IRA is to purchase the property outright with funds from your IRA. It's also possible to invest in real estate by having your IRA obtain financing in the form of a non-recourse loan.

Six reasons why you may want to consider adding real estate to your self-directed IRA:

1. Invest in what you know. Perhaps you're already active in real estate investing. This is an opportunity to capitalize on your knowledge to enhance your tax-deferred retirement assets.

2. Acquire your retirement home now and own it as an investment in your IRA. Simply purchase the home with IRA funds and rent it out to generate a return for your IRA until you are ready to retire. Upon retirement, you may request a distribution of the property and get ready to move into your new home!

3. Diversify your retirement investments. When stock market values fell so dramatically in 2008, some investors discovered firsthand the dangers of being too heavily invested in one type of asset. While real estate values declined as well, many investors feel more comfortable spreading their retirement portfolio across a variety of assets that may include alternative assets such as real estate.

4. Favorable tax treatment. Investments that generate cash flow (income) are often well-suited for IRAs because the income is tax-deferred, or tax-free in the case of a Roth IRA for qualified distributions). Additionally, if you are buying and selling property to make a profit within your IRA, there are no capital gains taxes imposed on each sale. You only pay taxes on withdrawals from a Traditional IRA. In a Roth IRA, qualified distributions are tax-free. These tax benefits may be reduced if an IRA purchases real estate using debt financing.

5. Cash flows and potential asset appreciation. Like other investments, real estate may increase in value over time. In addition, it is one of a few tangible assets that can generate income (rent) within your IRA.

6. Preference for tangible assets. If you like the idea of walking in, on or around a piece of land, a home or even an apartment building, IRA-held real estate may be an option for you. Keep in mind that you, your family members and other disqualified parties may not use the property while it is held in your IRA.

Some of the most popular types of real estate held in IRAs include:

• Single-family homes

• Commercial property

• Apartments, townhomes and other multi-unit homes

• Developed or undeveloped land

• Student housing

• Time shares and fractional ownership properties

• Condominiums

• Parking lots and garages

Other real estate related investments that may be attractive to an individual not looking to own actual property include:

• Mortgage notes and trust deeds

• Tax lien certificates

Keep in mind, real estate is only one of many types of investments that can be held in your self-directed IRA. With a self-directed IRA from a high-quality company, each client has the opportunity to diversify their investment portfolio by selecting traditional, marketable securities (such as stocks and mutual funds) as well as unique assets such as real estate, private placements, private corporate notes, offshore funds, deeds of trust, hedge funds and many more.