How much of the retirement money is too much for one house?

The ceiling isn't really a percentage, it's whether the account can survive a bad eighteen months without you. Vacancy, a special assessment, a tax bill, all paid from inside. If your answer to a $9,000 surprise is that you'd contribute more, remember annual contributions are capped and the cap doesn't care about your furnace.

I hold land in mine, which is the low-expense version of this problem. Taxes and the custodian fee and nothing else. Also no rent, so the cash reserve never refills itself. Pick your problem.

The answer turns on one assumption: how the IRA refills its cash without you. Everything else follows from that.

Inside the account you have three sources of cash for a repair. Rent from the property, other assets in the same IRA that you can sell, and the annual contribution, which is capped by statute and indexed, so confirm this year's figure. You are not a source. Paying an IRA expense from personal funds is a transaction with a disqualified person, and the consequences of a prohibited transaction can extend to the whole account being treated as distributed. That is a tax question for a professional, and it is the reason people size these positions conservatively rather than optimally.

So the useful framing is coverage months, not percent of portfolio. Take the property's annual fixed costs, taxes, insurance, custodian fees, and a maintenance allowance, and ask how many months of that the IRA's cash and liquid holdings cover with zero rent. If the honest number is two, the position is too big regardless of whether it's 30 percent or 70 percent of the account.

One mechanical point in favor of the structure you described. Rents, capital gains, and interest are exempt from UBIT under the code, so an unleveraged rental compounds without a tax filing at the IRA level. The moment you add a non-recourse loan, the portion of income attributable to the debt becomes unrelated debt-financed income, filed on Form 990-T, at trust rates that climb fast. All cash keeps the account out of that entirely and also keeps the reserve question simpler, since there's no debt service to fund during a vacancy.

Coverage months is the first version of this I've understood. @rena-expert, does the custodian fee usually get charged against the account cash automatically, or do they invoice and wait? Because if it's automatic and the cash is thin, that seems like the kind of thing that goes wrong while you're not looking.

I'd vote under 25 percent and I know that means I'd be buying something cheap. My first rental is closing outside a retirement account and the number of small costs nobody warned me about has been the whole education. Screening, turnover, a water heater. None of it huge, all of it cash out the door within weeks of each other. I would hate for that stretch to have happened inside an account I couldn't legally hand money to.