Self-directed IRA

What is a Self-directed IRA?

Unlike a regular IRA that you open with a brokerage firm, a self-directed IRA lets you take control of your own investment. And you're not limited to only stocks, bonds and mutual funds.

What can you invest in with a self-directed IRA?

With a self-directed IRA, you can invest in real estate, private equity, promissory notes or mortgage notes, foreign currencies, offshore funds, commodities, such as oil or petroleum and precious metals, such as gold, silver, etc.

How to use a self-directed IRA in your real estate investing?

If you contribute money to your Roth IRA, that money grows tax-free, since your contributions are after-tax money. With what you have in a self-directed ROTH IRA, you can purchase rental properties. The rental income that is generated is tax-free. When you sell your rental property for a profit, it is tax-free. If you ever ended up in a legal litigation, your real estate properties in your self-directed IRA is protected, because you don't own it. Your self-directed IRA owns the properties.

Isn't that a great retirement plan and asset protection strategy?

Related article: Why Buying Rental Properties Makes Sense?

How do you buy real estate properties with a self-directed IRA?

First of all, you need to have a self-directed IRA account set up. You can purchase real properties in one of several ways. If you have enough money in your IRA, you can purchase with all cash. Another option is to purchase with a non-recourse loan, which requires at least 50% of purchase price as down payment. One thing to remember is that non-recourse loan carries higher interest rates, which may eat into your profit or cash flow.

So my suggestion is, if your fund in your self-directed IRA is not enough to purchase a real property all cash, then consider other investment option to build up your cash first.

You may build up your cash by lending money through LendingClub.com or Prosper.com. Both LendingClub and Prosper.com allows you to open a IRA to fund your lending business.

Or you can invest in other types of investment offer through your self-directed IRA company.

Suggested reading: Self-Directed IRA Handbook

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Buying Real Estate With Your IRA and a Non-recourse Loan

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