How to Use a Self-Directed IRA to Invest in Real Estate

By KARLIN CONKLIN | Investors Management Group
September 20, 2018

  

Stocks, bonds and mutual funds are the usual way most people invest their IRAs, but there are alternatives. For investors who would rather walk their own path, a self-directed route is one way to go.

A self-directed IRA is a type of retirement account legally structured like a traditional or Roth IRA. Though the same annual contribution limits and potential tax advantages apply, self-directed IRAs allow individuals to utilize what is referred to as non-traditional or alternative investments, such as debt instruments, gold and other precious metals, businesses and real estate.

Banks, brokerage firms and insurance companies have historically controlled the type of investments made with IRAs and 401(k)s. They offer a more traditional approach to investing by limiting options to publicly traded stocks, bonds and mutual funds. Today, with information so readily available from a wealth of sources, investors can research and make sound investment decisions without relying exclusively on these traditional advisers.

People choosing the self-directed route are typically looking for diversification in their retirement investments.

Why Focus on Real Estate?

Real estate is REAL. It is tangible, finite and has historically been a multigenerational builder of wealth. Rather than an alternative retirement investment, real estate can be a key vehicle for growing one’s IRA account.

Why Would Someone Go the Self-Directed Route?

Ask yourself, “Do I want my entire retirement future to be left in the hands of Wall Street and money managers? Or do I feel confident that I can direct some of my funds and actually know where my money is invested?” Some investors believe that giving money managers or Wall Street complete control of their retirement is not the best path for them. 

By researching real estate investments and sponsors, you can gain the confidence to make your own choices. You may also find that real estate provides diversification and the potential for better returns, more quickly, than traditional investments.

How It Works

There are two ways to go the self-directed route. You can place the money through a custodian that specializes in self-directed IRAs or open and place the funds via a checkbook IRA account. In either situation, given the investment is self-directed, you must do your homework in order to understand the investment’s opportunity and risks. If there is any debt involved, it must be non-recourse. Maintaining records is critical.

Many of the traditional brokerages that hold IRAs and 401(k) accounts will not move the funds to non-traditional investments; therefore, you will need to direct the funds from your current account to an IRA custodian who works with self-directed accounts. Custodians such as Provident and IRA Services Trust Company have successfully worked with individuals to direct their IRA investments. The key here is to follow the rules and work with a reputable custodian.

Read the Full Article at Kiplinger.comHow to Use a Self-Directed IRA to Invest in Real Estate 


Karlin Conklin is a sought-after expert on value-add multifamily CRE investments. She has sourced, capitalized and helped in the repositioning of 7,000 multifamily units raising $350 million in equity from institutional partners, Tenant-In-Common (TIC) investors and high-net-worth individuals. Her transactional volume exceeds $1.3 billion.