self directed ira for real estate

Real Estate Investing With a Self Directed IRA

Why should you consider a self-directed IRA for real estate investing? Investors are looking for more stability. Over the past few years, Wall Street Journal, Forbes, and others have reported on Wall Street companies investing in real estate rather than stocks… because they know they can get a better return.

So, why are most Americans still trusting their own retirements… IRAs… 401ks… with the stock market?

The answer is, they don’t know any better.

This is a really interesting topic, but please remember that we are not financial advisors and aren’t offering financial, tax, or legal advice. Our goal is to present some new ideas, but you should consult with your professional advisors before making a financial decision.

The Self-Directed IRA for Real Estate

I first heard of the Self-Directed IRA (SDIRA) years ago at a financial conference. Over the years of our slow recovery, many people realized their stock market investments weren’t providing enough to fund their retirement (some people were even losing money). They started looking for other ways to invest with better returns but didn’t want to pay penalties for taking money out of their IRA.

Enter the “self-directed IRA”.

A self-directed IRA a retirement account that is still regulated by IRS code and has the same tax benefits as a normal IRA… but, you have more flexibility in deciding what you want your IRA to be invested in.

For example, you could invest in…

  • Real estate (commercial, income-generating rental property, rehabs, etc.)
  • Promissory Notes secured by mortgages (i.e. – private lending)
  • Tax lien certificates
  • Limited partnerships
  • LLC’s
  • Sub-C corporations
  • Real estate options
  • Some types of precious metals
  • … and the normal investments like stocks that your normal IRA can invest in if your HR department happened to chose the stocks or funds you want…

Essentially, you can invest in real estate through your IRA. You could even be a private lender in real estate, earning interest rates the S&P 500 only dreams of.

Are There Restrictions?

Absolutely yes, there are many. There are restrictions on how you buy real estate and what you do with it, even who you own it with. Other investments are also restricted, like what types of precious metals you buy. All of this is wrapped up in the “custodian” of your SDIRA.

Self-Directed IRA Custodians

The US Government created the SD-IRA opportunity so investors could take more control over their investments while still enjoying the tax benefits of classic IRAs. But, realizing they didn’t trust people to do whatever they wanted, they created some guardrails. The primary guardrail in the custodian.

The custodian is usually a company specializing in Self-Directed IRAs with whom you place your IRA. They act as the “go-between” when you’re going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment, and other details. Others are more passive… and let you actually have a checkbook where you can write checks from your SD-IRA to make investments. Also, some specialize in particular investments, rentals, gold, or ETFs.

You should do your homework and find the custodian that’s right for you. These are the big three that specialize in real estate investing:

I strongly encourage you to research them to see which is the right fit for you. Remember that fees vary, as do flexibility and the types of valid investments. Also, keep in mind that the Self-Directed IRA is an advanced investing technique and not appropriate for all investors.

Questions To Ask Before Signing Up

Be sure to complete your due diligence before transferring funds.

  1. What are the fees? – Fees can vary wildly. They may charge an annual fee based on the value of the account, a fixed annual fee, large setup fees, etc. Consider your style, assets, and needs before deciding. Keep in mind that the idea is to invest in real estate with your IRA… Higher returns can make up for some additional fees.
  2. What’s the process for approving an investment? – Some companies take more than 30 days to fund an investment after you send it in for approval. Others give you “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account… This gives you immediate access to the funds (i.e. – to close a deal quickly) but places greater responsibility for compliance on you. Checkbook control can be more expensive to set up than an IRA account that requires all investments to go through the sometimes lengthy custodian approval process.
  3. Are there restrictions on investments? If you want to invest in real estate and make private loans, conduct careful research. Some SD-IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in. Some don’t allow real estate… while others do. Just ask.
  4. Is my retirement account eligible to “rollover” into an SD-IRA? Most IRAs and many 401(k)s can be rolled over, but there are exceptions. Check with your financial advisor and ask the representative at the SD-IRA company you’re working with.
  5. How long will it take for my account to be up and running and have funds available for investment? Do your research and get started early because it will take some time. Plan for weeks to more than a month to be safe. If you have a specific investment in mind, it may already be too late. If you know you want to use your IRA to invest in real estate, get started on rolling it over into an SD-IRA account ASAP. Definitely, don’t wait for a great real estate deal to get started… get started now so your funds are ready to invest when you need them.
  6. What about investing my 401(k)? While lots of rules may apply, yes, it is possible to set up a self-directed 401(k) as well. You’ll need to consult with a specialist about your situation. If you have a revenue-generating business, it can be a powerful tool for tax deductions and investment.
  7. Are there risks? Yes! First, you should really only consider self-directed accounts if you have a strong retirement portfolio in place. The SEC also frets about fraudsters using the Self-Directed IRA to prey on the unwitting.

Getting Off The Sidelines And Getting Your Money Working For You

You’ve heard your financial advisor discuss the importance of diversifying your portfolio. Would a self-directed IRA enable you to invest a portion of your retirement in things you know (rather than the unpredictable stock market)? If you are ready to use your current savings for real estate, take some time to educate yourself on the pros and cons of an SD-IRA. Start with the websites above. They have all kinds of resources to learn more about self-directed IRAs and how you can use them to invest in real estate.

If you have any questions on how you can work with us as an investor… just connect w/ us through our contact form or call us anytime at: (402) 313-4500. We offer discount investment properties in Omaha and surrounding areas to investors like you who often buy and keep them as rentals. Also, for those qualified investors who want to explore private lending… contact us and we’ll talk about how we work with private lenders as well.

Happy investing! We’re here as a resource for you so don’t hesitate to connect with us anytime.