While home prices still haven’t hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market.

Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That’s because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today’s market.

“Here in Reno, prices are half of what they were at the top of the bubble, so, yeah, it might go down a little bit more but I don’t think it will go to zero, like some of my stocks have gone to zero,” says Terry Vander Ploeg, who invested $105,000 in a Reno foreclosure.

The catch is that you have to do it through what’s known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

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