You'll need to find an administrator that will serve as trustee. Most take a small percent of the asset value as their fee, although some operate on a transaction fee. You cannot use IRA money to buy your own residence, or any other property in which you live. It has to be investment property. However, when you retire, you can direct your IRA be turned over to you as a distribution, at the current market value.

Contact an independent trustee for a self-directed IRA. You must find an institution that will open a self-directed IRA and follow your "self-directed" instructions to the letter. Examples of such institutions include Mid-Ohio Securities in Elyria, Ohio, or Sterling Trust in Waco, Texas, as well as Guidant Financial (read more below).

You must sign broker-to-broker papers that will transfer designated portions of your existing IRA to your self-directed IRA.

Find and buy the property using a real estate attorney to create the usual documents. Remember, you most likely will have to explain IRA ownership to him. The trustee will take title at your direction.

The rules governing real estate IRAs are strict:

• The house or property must remain in the trust until distribution at retirement.
• It must be treated like any other investment.
• You cannot manage the property. But your trustee can hire a third party -- a real estate broker, or local manager -- to collect rents and maintain or improve the property.
• All rental profits must be returned to the trustee.

The "Self-Directed IRA" from Guidant:

The "Truly Self-Directed IRA" gives you a variety of benefits that are not available by opening an account directly with an IRA Custodian. Guidant’s Truly Self-Directed IRA gives you complete control over the IRA's investments. The Truly Self-Directed IRA provides our clients with the following benefits:

• Checkbook Control - You simply cannot participate effectively, if at all, without it.
• Limited Fees – Our clients pay one small annual fee each year. There are no transactional, asset or holding fees charged to Guidant clients.
• Complete Diversification - Actively invest in stocks, options, real estate, businesses, tax liens and more at the same time!
• Asset Protection – receive additional insulation for your investments.
• Flexibility - Self-directed Custodians traditionally allow you to invest in either securities or non-traditional investments, not both. Guidant will allow you the flexibility to follow the trends and take advantage of growth in many marketplaces.
• Combining Contributions – When done correctly, you can use your IRA, personal funds, friends, family and partners to participate in larger, higher yielding investments.
  

You can learn more about this type of IRA account at Guidant Financial.