Alex Finkelstein is co-editor of Debt & Equity Journal, from which this article is excerpted.

Boston—A growing number of investors are using self-directed, tax-deferred individual retirement accounts to own commercial real estate, according to mortgage bankers and real estate tax lawyers interviewed by DEJ.

Both John Edwards, a director in Arbor Commercial Mortgage's Boston office, and Terence J. Delahunty, a real estate practice partner in the Orlando, FL office of Foley & Lardner, say many investors are using the cash values of tax deferred accounts as a source of equity for acquisitions. However, Charles J. Beaudrot Jr. and Scot Burton, both of the real estate capital markets group of Atlanta-based Morris, Manning & Martin LLP, say the pros of using an IRA account to acquire real estate may be outweighed by the cons.

"As a rule of thumb, it is often a bad idea," Beaudrot says. However, he continues, "There is no simple answer. It depends on the individual taxpayer's asset mix, both inside and outside the IRA." Section 408 of the Internal Revenue Code permits individuals to purchase commercial and residential property, land, condominiums, trust deeds or real estate contracts with funds held in a traditional IRA, Roth IRA or SEP-IRA.