Control your investments with self-directed IRA investing

Jeremy Vlasich  I have a lot of people ask me about what to invest in and how.  Not every time, but often, the self-directed IRA investments can be great options for people that are in the real estate industry.  For this post, I wanted to go over the basic concept and give some actual real-life examples.  Once you read this, if you still need help or have questions, you are more than welcome to reach out.  We are here to serve and help!

What is an IRA and what does a “self-directed” IRA mean?  This is an Individual Retirement Account.  There are two options:

  • Roth IRA – contributions are post-tax and then the growth is tax-free for life
  • Traditional IRA – contributions are pre-tax and then the growth deferred

During the 2020 year, you can contribute $6k a year and add $1k if you are over 50. There are income limits for contributions for the Roth IRA and the tax-deductible traditional.  However, you can always contribute to the traditional but the income limit determines if the IRA is tax-deductible or not.  All traditional IRA’s are tax-deferred.  The Roth IRA is the only tax-free growth IRA.


Also, you can rollover your retirement plan from your last job into a custodial account that will allow you to invest in real estate, lend money, fund businesses, and potentially other options.  Plus, you can still invest in stocks, bonds, and mutual funds.  The money must be held at a custodian that you can direct to invest in these investment opportunities.

What types of plans can you use as self-directed? You can self-direct a traditional IRA, Roth IRA, 401k, pension plan, college savings, and HSA plans.  

I have been asked, “Why would I invest in a self-directed plan over my 401k or brokerage account?”  The easiest answer…You have more control on your returns.  The volatile market in stocks and bonds is removed when you control the investment decisions using real estate or lending.  You can lock in your rate of return and often get 15% to 100% annualized returns.

Moreover, you can create deals and do “insider” trading with people that you work with and associate with.  You can create deals from the “structure” of the deal rather than just buying low and selling high.  

Finally, if you are in the real estate market, then you will have a competitive advantage to do deals with other investors and agents.  You can buy deals or just lend money to other people.  Remember, you must comply with certain laws on self-directed investing.  Please make sure that you do additional training on self-directed IRA investing and what transactions are considered prohibited transactions.

What are some of the investments that you can do, right now? 

You can buy a property that can be rented out in your self-directed plan. There are rules to do this, but you can do this!  If you come across deals that are under market, then you substantially maximize your returns.

You can loan money to people for the BRRR method (Buy-Rehab-Rent-Refinance), rehabbing properties, split fund larger deals, or for bridge financing.

You can invest in stock in a private or public company.

You can take out “options” on land or properties that will potentially have a higher value in the future. (I know you think that no one will give you an option!  Think about the person that wants to stay in the house forever or where future development is moving.)

You can invest in a business. The self-directed account can buy stock in a company.  Or, you can fund an LLC that is just starting up.

Put your investments and contributions on steroids!   You can actually create a solo 401k for your business that has a Roth component.  Your business can contribute up to $57k a year in this plan ($19,500 as the traditional 401k and the balance as a Roth component).  Again, there are rules, but you can do this!  Check out the Solo 401k online or at a training for more information.

Prohibited transactions.  Make sure that you are doing “legal” transactions.  Your self-directed account cannot benefit from your services or management.  There are other rules.  I highly recommend you do training on self-directed accounts.  I recommend Pete Fortunato and Dyches Boddifor at  SelfDirectedIRAInvesting.com  (By the way, I am not affiliated and do not receive a benefit from recommending them.  They just do a fantastic job at training on self-directed IRA investing).

My wife will often tell me that I cannot teach or give advice on things that I do not do personally.  So, let me tell you about deals that I have ACTUALLY done!  (My wife just smiled)

Example Deals:

Buy a property that is discounted and hold the property as a rental in your IRA. By the way, this example was not a home-run deal.  This could easily be replicated from the MLS with your real estate agent.  The deal structure is most important.  Check out the numbers:

I bought a condo for $52k in my Roth IRA. A property management company managed the unit with a tenant. It was rented for almost 2 years.  Net cash flow after all expenses, management, fees, and repairs was $3k a year.  The property was sold once the tenant moved out around year 2 for a net of $70k (this was sold as-is with no repairs or inspections).  So, $6k in cash flow plus equity appreciation of $18k less repairs and updates of $7k equals a net return of $17k in 2 years.  This was a return of 33% for an investment in 2 years or 16% on an annualized return.

The next example is to loan money from your IRA.

Here are the numbers: Lend to another rehabber at 3 points and 1% a month. I typically lend money at this rate for 6 months or less.  This is an actual return of 9% in 6 months.

Here is another example for you to invest in a business. Your self-directed IRA can purchase stock in a privately held company.  I have attempted this twice.  The deals fell apart before I could fund them.  However, I was basically going to invest money for a percentage of ownership in a large apartment deal.  The investment company was set up just for this deal.  I was going to have my IRA buy stock in this company.  The returns and cash flow could be huge and similar to perpetuity.

I hope this helps with opening your mind to an investment opportunity using your retirement plan.  The best thing about investing in real estate and self-directed IRA investing is that you can be creative and “structure” deals that can have large returns.

If you feel like you just drank water from a firehose, please take a deep breath and relax.  We can help you!  Or, you can go to additional training to get more knowledge.  No matter which route you decide to do, I hope that you choose to become an active self-directed IRA investor!  That payoff is worth it…

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