Are Self-Directed IRAs the Best Kept Investment Secret?

By William Bronchick, Real Estate Mentor

There is any number of reasons why your investment advisor or broker hasn’t talked to you about a self-directed IRA. It could be they are afraid of losing your business, or it could simply be that they aren’t familiar with them. Whatever the reason, you should know all of the investment options optional for your IRA. Having a self-directed IRA is one of them. They are especially handy when it comes to real estate investing.

Self-directed IRAs allow IRA owners to have increased control over what investments they invest in outside of the traditional choices: Stocks, bonds, CDs, and mutual funds. Most investment firms limit their clients to whatever investments they hold. If it’s a bank, that will typically be CDs, and brokerage houses generally invest your IRA in the market. If you ask your broker about other investment alternatives, they may try to discourage you or tell you they aren’t allowed. And they may not be – at least at their firm. Not all investment firms are authorized to allow their clients’ IRAs to be self-directed, which means you would have to find a custodian who is. Taking your IRAs assets, and your broker’s commissions with you. This is why self-directed IRAs may well be the best-kept investment secret.

Alternative Investment Options

Self-directed IRAs can purchase real estate, precious metals, open brokerage accounts, lend money, and invest in businesses. Opening up a whole new avenue of income-producing potential for your IRA.

Real estate is still a potentially lucrative investment option for your IRA. There is a surplus of homes left over from the real estate bust. Because of the foreclosure process and take years to be complete, there are homes continuing to come onto the market via auctions and foreclosure sales. Tax liens are also up for grabs. If you purchase property in a state like North Carolina that has no redemption period, you can come away with a great property for pennies on the dollar. What better way to put your IRA funds to good use than investing in properties that can not only bring a significant return on your initial investment (down payment) but can bring a steady flow of monthly cashback to your IRA.

Precious metals may be a sound investment choice for your IRA. While currencies can lose value and exchange rates fluctuate, the price of gold and silver have appreciated significantly over the years. And precious metals are not beholden to any particular country. Everyone speaks the language of ‘gold’.

Investment brokers make money every time there is a transaction with your IRA. Buying, selling, and trading stocks and bonds rack up huge fees for brokerage houses and hefty commissions for brokers. If you knew that you could open your own brokerage house and do your own trades, that would put a nice little dent in their profits.

Get Around Annual Maximum Deposits

By investing your self-directed IRA in real estate investing you have limitless potential. Traditional and Roth IRAs have annual maximum contribution limits. Let’s say your IRA invests in a home, fixes it up, and sells it for a $20,000 profit. That $20,000 goes back into your IRA and is almost 4x the yearly contribution limit. Now you have an additional $20k to invest in another property. Another example, your IRA purchases an investment property and rents it out for $800 a month. That is $9600 a year positive cash flow that returns to your IRA. That’s almost double the maximum contribution you can make. And as long as you hold on to the property and rent it out, you will continue to add that money to your IRA year after year. When you eventually sell it, all the equity returns to your self-directed IRA.

This is just one of many examples.

Stop hindering the growth potential of your IRA and take control of your financial future. Investors in the know have almost $100 billion in self-directed IRAs. Don’t get left in the dust while your broker gets rich and your profits dwindle. This is one secret it’s okay to tell!  Also, having an experienced real estate coach or real estate mentor on your team is a great way to ensure success.

About the Author William Bronchick

President and founder of the Colorado Landlords Association, best-selling real estate author and attorney, landlord and real estate investor with 28 years' experience.

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