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Investing in Real Estate with a Self-Directed IRA

Investing in a Self-Directed IRA is a wise option that most investors are not even aware of. Fortunately, I learned many years ago that my chances of quickly growing and safeguarding my retirement funds were much higher with an SDIRA than with a traditional IRA or 401k. Many individuals blindly have their life’s savings tied up in retirement funds such as these, putting their nest egg in a risky environment that is at the mercy of the stock market. Self-Directed IRAs allow you to remove that risk by granting you more control over your funds. With that said, let’s dive in and learn more about investing in Self-Directed IRAs so you can feel confident that you’re investing wisely.

What is a Self-Directed IRA?

A self-directed individual retirement account is a more flexible version of a traditional IRA when it comes to what investments are allowed. It provides the investor with control over investment choices, and is not restricted to the standard IRA investments – stock, bonds, CDs, mutual funds, and the like.

An SDIRA is designed to allow for a variety of investment options such as using retirement funds to purchase rental real estate, digital currencies, precious metals, and other items of interest. Additionally, this type of retirement savings account will enable an individual to branch out from these traditional asset choices, which can result in a diversification of their portfolio.

Who Should Invest with an SDIRA?

SDIRAs are best for those who wish to have more control over what they invest in, and who would like to maintain control over their investment. Alternatively, when your money is tied to a traditional IRA, someone else is basically in control of your funds. Plus, the stock market ultimately steers the ship as to how much money is in your account at the end of the day. So, if you would like to be the one who calls the shots as to how your money is invested, then an SDIRA is right for you.

Additionally, you may have a particular interest that will enable you to put your knowledge or passion for a particular subject to good use. For instance, maybe you are an expert in cryptocurrencies, or you have a passion for real estate. Using your funds to invest in these areas would be a smart move, as well as enjoyable.

Please note that although you have control over what you invest in, by law, an SDIRA account will always have a custodian or trustee in place that oversees the account to a certain extent.

What Can You Invest in with a Self-Directed IRA?

For those who are new to self-directed IRAs, you might be surprised as to what type of alternative investment options are allowed. Let’s take a look at a few options you will have if you switch from a traditional IRA or 401k, to an SDIRA:

Is Investing in Rental Real Estate with a Self Directed IRA

  • Residential Rental Real Estate
  • Commercial Properties such as Office Buildings
  • Raw Land
  • Trust Deeds and Mortgages
  • Stocks, Bonds, Mutual Funds
  • Start-Up Businesses
  • Precious Metals
  • Private Stock
  • Digital Currencies
  • Oil and Gas
  • Limited Liability Companies
  • Limited Partnerships
  • Annuities
  • Promissory Notes
  • Tax Certificates
  • Tax Liens
  • Agriculture

The Best Way to Maximize an SDIRA is to Invest in Rental Real Estate

I’ve invested in many alternative options, and I can say, without a doubt, that purchasing rental real estate through a self-directed individual retirement account is the safest, and most lucrative way to grow your retirement funds. You would just need to ensure the property is strictly for investment purposes, the SDIRA holds the property title, all rental income is funneled back into the SDIRA, and there are no personal indirect benefits to the investor.

Qualifying real estate includes, single and multi-family homes, townhomes/condos, and more. You can gain additional knowledge on the topic by reading our latest article titled – Can You Use a Self-Directed IRA to Purchase Real Estate?

If investing in real estate with an SDIRA has sparked your interest, watch this outstanding video that talks more about it:


Benefits of a Self-Directed IRA

I’ve chimed in on some of the advantages of using a Self-Directed IRA, and from this, you may already feel it’s a better alternative to the traditional IRA or 401k. You will be even more convinced of this fact after reading through more benefits of this type of retirement investment vehicle, especially if you are interested in using a Self-Directed IRA to buy real estate, which is what we are mainly focusing on in this article.

1. You Have Control Over What Assets You Invest In

We were trained from a young age to follow a certain path when it comes to our retirement funds. One aspect of this is to connect with a firm that handles IRAs, 401ks, and the like. You then pass the torch over to them to manage your funds, and make the decisions as to what your money is invested in. This typically includes various stocks and bonds, and so on. This is the norm. Most people don’t know there is another way that gives the investor control over their hard-earned money, as opposed to having a stranger call the shots in regards to their nest egg.

On the other hand, when investing with an SDIRA, you will have control over your investment decisions, and therefore, be able to invest as you see fit, based on your experience, knowledge, and best interests. You would no longer be restricted to investing in typical risky stocks and bonds.

So, it just makes sense that having control over your life savings is wiser than having a random company employee make the decisions for you, and investing in a Self-Directed IRA makes that possible.

Consider Incorporating to Skip the Custodian Approval Process and Gain More Control

Although you do have control over your investment decisions with an SDIRA, keep in mind that your account will still have to be managed by a custodian that will need to approve your investment choices. However, you can get around the approval process by incorporating your real estate investment business as an LLC. This will give you check-writing privileges that enable you to purchase a property without asking for permission from the custodian.

2. Keeps Your Retirement Funds Safe During Economic Downturns

Think about it, if your money is sitting in the hands of a traditional IRA custodian, and an economic disaster hits that destroys the stock market, it’s almost certain that you will lose a large chunk, or possibly all of your retirement savings. What if that were to happen right before you were set to retire? You might have to say goodbye to your dream of retiring at a certain age, and just continue to work to support yourself. Why take a risk as great as that when you have the opportunity to invest in such a way that will keep your funds out of reach from the volatile stock market.

Investing in a Self Directed IRA to Grow and Protect Your Retirement Funds

I’ve just touched on why it’s not a great idea to place your funds at the mercy of the stock market, but if you would like to read more about it in detail, dive into our article – Why Investing in Real Estate vs Stocks is a Smart Decision.

3. Investing in a Self-Directed IRA Makes Financially Out of Reach Assets a Possibility Through Co-Investing

You may, at some point, find yourself in a situation where you have a good amount of money built up in your retirement account and want to use it to purchase a specific asset, but you come up short. However, investing in a Self-Directed IRA can eliminate this financial roadblock. This is the case because an SDIRA will allow you to pool your funds with others to purchase assets such as a rental property that you may not have enough funds to buy on your own.

You have a few options for co-investing in real estate with a Self-Directed IRA:

Co-Invest with Yourself: You can partner with yourself by co-investing with other SDIRAs you may own, or with your personal funds. If you would like to see if you can obtain more money to fund an investment, we have a low-interest funding page that will give you more information on the topic. We have helped many investors grow their portfolio through additional funding.

Invest with Family Members: You may co-invest by becoming partners with any family member. However, you must not do business with (buy from them, sell to them, or rent to, and so on) your lineal descendants or ascendants. This would include your parents, children, grandchildren, your spouse, and the like. In sum, you can co-invest with them to buy a rental property, but you are not permitted to do business with them in any way when it comes to the investment.

Partner with Other Investors: There may be many like-minded investors who will be interested in partnering with you for more purchasing power. Finding partners such as these will give you more leverage to grow your rental real estate portfolio.

When partnering with others, it would be wise to co-invest through an LLC. There are many beneficial reasons for this. For instance, when tenants pay their rent, they can simply write a check out to the LLC, as compared to writing a check to each partner’s SDIRA. If you need assistance setting up an LLC, we use Garrett Sutton from Corporate Direct. He’s the personal asset protection attorney for real estate giant, Robert Kiyosaki. Take a look at the  Corporate Direct website to see if he may be a good fit for you.

4. SDIRAs Can Grow Your Retirement Funds at a Faster Rate

If you plan on investing in a Self-Directed IRA with real estate, then you will be ahead of the game in no time. This is because rental real estate is one of the best ways to build great wealth. The rent checks will be heading to your retirement account like clockwork every month, and there is no chance of your account draining from stock market crashes. Your Self Directed IRA funds will just keep growing. Additionally, the money that is placed into your retirement account will grow tax free until you start taking money out when you retire.

You will want to ensure that you have a personal accountant that is well-versed in SDIRAs, real estate, and taxes. We use Tom Wheelwright of WealthAbility. He is the personal tax advisor to Robert Kiyosaki, and many successful real estate professionals. Take a look at our page that provides more information on what WealthAbility can offer. You can also read Tom Wheelwright’s book by visiting his Amazon page; it’s called Tax-Free Wealth.

Before you read more, watch this video on why switching from a traditional IRA to a Self-Directed IRA can set you on the path to building great wealth:


Disadvantages of a Self-Directed IRA

There are a few elements that some investors take note of when using an SDIRA to invest in real estate, that they feel are negative aspects. Let’s go over the most notable:

1. SDIRA Rules and Regulations

Investors may feel some of the rules of investing with a self-directed IRA are cons, but keep in mind, when you are dealing with financial matters, there are always rules and regulations to deal with. Plus, in my experience, the pros of investing with an SDIRA far outweigh any cons.

We have already touched on a few rules and regulations of investing with a Self-Directed IRA, but here is a general summary that pertains to investing in rental real estate:

  1. Money made from the investment property has to be placed into the SDIRA.
  2. The SDIRA should hold the property title, not you or your partners.
  3. You must pay rental property expenses from the Self-Directed IRA.
  4. You may not purchase property from, or sell to, yourself, or a disqualified person, which includes a spouse, child, grandchild, or grandparent – any of your lineal descendants or ascendants.
  5. No indirect benefits are allowed, such as you personally living in the rental, and the like.

It would be wise to consult with your custodian to get a detailed list of all rules and regulations pertaining to investing with a Self-Directed IRA.

2. Switching to an SDIRA from a Traditional Account May be Confusing

It can feel a bit overwhelming when thinking about how to move your funds from your traditional IRA or 401k, over to a Self-Directed IRA, but it doesn’t have to be. In reality, your custodian will walk you through the process. Additionally, if you utilize a full-service real estate company when buying property, they can set up your SDIRA for you.

How to Invest in Rental Real Estate with a Self-Directed IRA

Assuming you currently have a traditional IRA, the process for buying real estate within a Self-Directed IRA would be as follows:

Step 1: Select a Custodian – To invest in rental real estate with your retirement funds, you will first need a specialized custodian that will convert your traditional IRA into a Self-Directed account. You should choose a custodian that has a portfolio that demonstrates their understanding of the complexities of investing in real estate with an SDIRA. Additionally, you can read more about the benefits of switching from a traditional to a Self-Directed IRA in our latest article on growing your retirement funds.

Step 2: Research and Choose Your Rental Property – You will want to fully vet any properties you are considering investing in with your Self-Directed IRA to make sure it will be a profitable deal. You can quickly test out a property’s profitability by using the 1% rule. If you’re not familiar with how to do this, read through our article on the 1% Rule for Real Estate Investing; it can save you a lot of money and is worth checking out. When researching, you should take note of the condition of the property and the neighborhood, crime rate, how long the property has been on the market, as well as the rental market itself. You can also take a look at this webpage to learn about DealCheck’s property analyzing software. DealCheck provides the tools that help you avoid wasting time with unprofitable rental properties.

Step 3: Get Approval from Your Custodian – You will need to obtain approval from your custodian to move forward with purchasing the piece of real estate that you are interested in. However, as mentioned, if you incorporate and have a Self-Directed IRA, LLC, it will grant you check-writing privileges and allow you to skip the approval process.

Step 4: Make an Offer on a Property – The next step would be to make an offer, just like you would with any rental property purchase. If the offer is accepted, and all goes as planned, you are able to move to the next step.

Step 5: Custodian Finalizes Paperwork – Your custodian must be the one to sign all the necessary documents on behalf of your Self-Directed Individual Retirement Account for it to be legal and official. Once this is done, the real estate deal continues to move forward just as any property deal would.

I wanted to mention that if you intend on renting out properties, you can streamline the rental/tenant process with software from Landlord Studio. I have personally used it, and I recommend it to all our clients. Take a look at the Landlord Studio website to see if it’s right for your situation. In addition to this, it’s important to ensure you have the property real estate insurance set up for your rentals. I always recommend NREIG for rental property insurance. You can view the NREIG website to read more about this company.

For more details on buying rental properties through your retirement account, read our article titled – How to Use a Self-Directed IRA to Invest in Real Estate.

An Alternative and More Simple Way to Buy Rental Properties with a Self-Directed IRA

It’s worth mentioning that there is also an additional way to invest in real estate where you can bypass most of the above steps and have all the details taken care of for you, making the whole process really simple. This is accomplished by contacting a full-service real estate company such as Morris Invest. We have worked with many clients over the years, getting them set up with a cash flowing rental property that is purchased through their SDIRA.

Investing in a Self Directed IRA

Morris Invest can do the traditional to Self-Directed IRA transfer for you in 10 minutes. We can also conduct the market research to provide you with a lucrative rental property, as well as assist with getting your real estate company incorporated so no custodian approval is needed. Our real estate investing company can also take care of all the property renovations, place a reliable tenant and a property manager, and more. All you really need to do is schedule a complimentary call with Morris Invest to get the ball rolling, and expect to receive a rent check from your new tenant the very first month.

SDIRA Real Estate Investment FAQ

With self-directed IRAs being a popular option, we are frequently asked questions pertaining to the topic. Here are three of our most common inquiries:

1. What is a Self-Directed IRA custodian for real estate?

Whether you have a traditional or Self-Directed IRA, you will always have a custodian who manages and oversees the account for you. When your IRA is held with a traditional brokerage firm, such as Fidelity or Vanguard, their custodians will limit you as to what you can invest your retirement funds into. Rental real estate is not an option. When you seek to use your IRA funds to invest in real estate, a custodian that specializes in Self-Directed IRAs is needed.

An SDIRA custodian will not limit you to stocks and bonds, and real estate purchases are welcome. Also, a specialized custodian such as this will convert your traditional IRA into a Self-Directed account, as well as have the knowledge and experience to use your SDIRA funds to invest in a rental property.

2. What type of retirement accounts can be rolled over to a Self-Directed IRA?

A few examples of accounts that can be rolled over to a Self-Directed IRA include a traditional 401k, solo 401k, traditional IRA, SEP-IRA, 403B (tax-sheltered annuity plan), profit-sharing plans, as well as others.

3. What investments are prohibited in a Self-Directed IRA?

Three specific investment types – collectibles, life insurance, and S-Corporations, are prohibited from being held within a Self-Directed IRA.

In regards to collectibles, the following are a few examples of assets that are not permitted, as stated by the Internal Revenue Service:

  • Artwork
  • Rugs
  • Gems
  • Antiques
  • Stamps
  • Metals (with exceptions for specific types of bullion)
  • Coins – (with exceptions for specific coins)
  • Alcoholic beverages such as expensive bottles of wine
  • Certain other tangible personal property

Additional Rental Real Estate Articles

Investing in a Self-Directed IRA Will Put You on the Path to a Financially Secure Retirement!

If you’re looking for a way to keep your retirement funds safe, as well as a better plan for growing your funds, I hope you have found the answer within this article. Self-Directed IRAs are really the best way to ensure your funds are safe from stock market crashes, set-up in such a way that your investment grows at a rapid pace, and will allow you to sleep better at night knowing your golden years will be financially secure.

Morris Invest helps people invest in real estate with their Self-Directed IRAs. If you would like to talk to one of our team members about the topic, feel free to schedule a complimentary call.

Before I sign off, I wanted to mention that if you’re looking to achieve financial freedom through real estate investing, you can download my free cheat sheet that’s used for calculating your Freedom Number. Visit my Freedom Cheat Sheet information page to read more about it to see if it’s something that may help you kick things up a notch financially.

For more inspiration, watch this video on Self-Directed IRA tips that will make you rich.

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