The last few years of low yields and economic uncertainty have led many investors to look for investment vehicles beyond CDs, stocks and bonds in their IRAs.

Heightened volatility in the markets has created a desire among investors for more stable, income-producing vehicles. Many investors feel that in order to get a meaningful yield, they have to take on an uncomfortable level of risk. These factors have led some investors to seek alternative investment options for their IRAs, hoping to have more control of their investment returns and reduce exposure to big swings in the market.

Unfortunately, many that have taken this route have found that their broker does not allow or strictly limits access to alternative investment vehicles.

Real estate is an alternative investment choice that gives the investor more control over cash flow and less fluctuation in price than a publicly traded security. Many investors haven't considered directly owning real estate in their IRA because their broker does not allow it and brokers don't have the same financial incentives to help investors buy into real estate.

One source estimates that less than 1 percent of the $3 trillion of assets invested in IRAs is allocated to direct real estate investment. In time a when real estate values are depressed relative to five years ago, this investment option could be a great way to capture capital appreciation and generate steady income.

Holding the real estate in an IRA would mean that the increase in value and the rental income would be tax-deferred; however, one should be cautious and know the rules because a misstep could trigger big tax liabilities.

To purchase real estate in an IRA, an individual must open a self-directed IRA account with a custodian that will hold a direct real estate investment. Banks and most brokers do not allow non-traditional or alternative assets like private stock, partnership interests and notes. However, a quick Internet search for "real estate IRA" will produce several hits on custodians that specialize in accommodating alternative assets.

Properties that are the most appropriate for an IRA are apartment complexes, rental homes, "fix-and-flips," commercial real estate and undeveloped land.

The IRS does not allow individuals to purchase their own residence or a vacation home with their IRA. The IRS also disallows the purchase from or lease to linear family members, such as a spouse or children. Breaking this rule would create a taxable distribution from the IRA.

Holding investment property in an IRA comes with a few particularities that should be considered. The income and expenses from the property must stay within the IRA. Depending on the IRA custodian, the owner may have to pay a transaction fee every time a check is written to cover property management fees or to pay the repair man.

Additional complications arise if the IRA has to finance the purchase of the property with a mortgage. An individual cannot personally guarantee a loan made to an IRA, so few banks will be interested. Also, the use of leverage may trigger unrelated business income tax and unrelated debt-financed income tax, thus losing its tax advantages.

If an individual purchases the real estate out of the IRA, it will be considered a distribution, with the current value of the property subject to ordinary income tax.

Real property could make a great addition to an investment portfolio by reducing volatility and generating income.

However, individuals considering real estate for their IRA should be wary that this process can be complicated and prone to making costly errors. Financial planners and tax advisors should be consulted to help steer through the process to increase the chances for a successful IRA investment.

Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Travis Flenniken, CFA, is vice president of investments with DeMoss Capital -- demosscapital.com. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by emailing him at dflessner@timesfreepress.com.