Internal Revenue Service (IRS) regulations require that a qualified trustee, or custodian, hold IRA assets on behalf of the IRA owner. The trustee/custodian provides custody of the assets, processes all transactions, maintains other records pertaining to them, files required IRS reports, issues client statements, helps clients understand the rules and regulations pertaining to certain prohibited transactions, and performs other administrative duties on behalf of the self-directed IRA owner.

The account owner for all IRAs chooses among the investment options allowed by the IRA custodian. For regular IRAs these options usually include stocks, bonds, and mutual funds, but with a self-directed IRA, the term "self-directed" refers to the significantly broader range of alternative investments available to the account owner. IRA custodians are allowed to restrict the types of assets they will handle in addition to Internal Revenue Code (IRC) restrictions.

An IRA can purchase any type of real estate as long as the provider (aka custodian) of that IRA handles real estate. IRA providers that handle real estate are often called self-directed IRA providers. If the IRA does not have the full purchase price, the IRA can partner with a person, company/entity or another IRA, or it can secure a non-recourse loan to buy real estate. Whether the IRA is whole or part owner, IRA funds are used for purchase, maintenance, and expenses. When the property generates cash either with rental income or from sale, those funds go directly back to the IRA. The IRS prohibits certain actions. For example, either the IRA holder nor any disqualified persons to that plan may live in or vacation in the property. The IRA holder makes all the decisions about how the asset is maintained but cannot do the work themselves.