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Best-Kept Secret To Unlock Capital For Real Estate Investing: The Self-Directed IRA

Best-Kept Secret to Unlock Capital for Real Estate Investing: The Self-Directed IRA

Are you tired of not having control of your own retirement future? Would you like the ability to diversify your investments beyond the traditional stocks, bonds and mutual funds? How about shielding more income and paying less taxes? If you’ve asked yourself any of these questions before then maybe it’s time to look into one of the best-kept secrets being utilized to unlock capital for real estate investing; the self-directed IRA.

What exactly is a self-directed IRA?

A self-directed individual retirement account (SDIRA) is an individual retirement account (IRA) in which the investor is in charge of making all the investment decisions. A (SDIRA) is not significantly different than any other IRA, however a self-directed IRA is unique because of the greater opportunity for asset diversification and because the investing direction comes from YOU. Most people assume that an IRA can be kept only with a brokerage firm, such as Fidelity and Vanguard, and that its portfolio must reflect the traditional stock or bond mutual funds they offer. But that’s not true.

How does it work?

With a self-directed IRA you direct how the funds are to be invested (hence the name). Thus, the options available to you are wide open (with certain limitations). Not only can you invest in stocks, bonds and mutual funds, but you can also invest in real estate syndications, private placements, notes and much more. In fact, your options are almost unlimited as to what you can invest in.

Investing in real estate syndications through a self-directed IRA can be a great way to diversify your retirement account. Traditional and Roth IRAs can be converted into self-directed IRAs, where the individual has more control over what to do with the cash and still has the tax deferred benefits that an IRA offers. 401(k) plans work a little differently; if the individual is still employed by the company that sponsors the 401(k) plan, he or she can’t move the money around. If it’s an old 401(k), a rollover is completely possible. That’s what I did for my first two multifamily investments, having rolled over a traditional IRA to a self-directed IRA. The process was fairly easy and straightforward and allowed me the opportunity to begin investing in multifamily syndication deals as a limited partner. 

And here is the best part; the growth of the investments in your IRA is tax deferred. If you set up a Roth IRA, the growth is tax-free. Think about that. If you invest in a $100,000 in a real estate syndication and double your money in 5 years that growth could be tax-free. Through a self-directed IRA you could invest in commercial real estate syndicationswhich, like investing in mutual funds, would be entirely passive. You simply choose a syndication or real estate fund you want to invest in, and you direct the custodian of your self-directed IRA account to invest the funds on your behalf. Any returns that you make on the investment go right back into the self-directed IRA account.

Why haven’t I heard of a self-directed IRA before?

Self-directed IRAs may seem like a recent phenomenon, but they have been around since the IRA was established in 1974. The Retirement Industry Trust Association (RITA), a self-directed IRA industry trade group, estimates that assets in these types of retirement accounts represent 3 percent to 5 percent of total assets held in IRAs. You will not see self-directed IRAs advertised with traditional and Roth IRAs at mainstream brokerage firms.

One of the biggest differences when converting over your IRA to a self-directed IRA is that it requires you to hire someone to act as the “trustee” or “custodian” of the account while you act as the director, deciding what to invest the account funds in. Investors seeking a self-directed IRA will typically need to open an account with a specialized firm that offers qualified (SDIRA) custody services. There are many custodians to choose from so I’ve listed a few companies below that I’m familiar with. As with anything, due diligence is key, so find a custodian that best fits your needs.

Real Estate Self-Directed IRA Advantages:

  • ​Investment Control: The account owner is the one who makes every single investment decision and ultimately determines how, where and when to invest the retirement funds.​

  • Tax Advantages = Lasting Wealth: Investing over time in a tax-advantage account like a self-directed IRA (tax-deferred/tax-free profits, plus the possibility of large tax deductions) can have a tremendous effect on future wealth.

  • Secure Hard-Earned Assets: Self-directed IRAs are afforded protection under federal bankruptcy laws to ensure assets are secure.

  • Provide Wealth for Your Future Generations: Certain self-directed IRAs allow the passing of assets to beneficiaries after death with little or no tax, allowing you to stretch wealth over generations.

Additional Considerations:

When using an SDIRA to invest in real estate, it’s also important to be aware of IRS regulations pertaining to real estate investments within SDIRAs. In an SDIRA, the individual investor (not the custodian) is solely responsible for complying with IRS regulations regarding their investments.

While a comprehensive list of IRS regulations for real estate investments in SDIRAs is too long to include in this article, here are the main rules to keep in mind:

  • You cannot purchase property for personal use or for use by a disqualified person.

  • Disqualified persons include: members of your family, any party that exercises discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets, any party that charges to provide investment advice with respect to your IRA or has any authority or responsibility to do so, any party that has any discretionary authority or discretionary responsibility in administering your IRA, your IRA custodian/trustee, and any entity in which you own at least a 50% share.

  • The investment must be titled in the name of your IRA, not in your personal name. 

  • Expenses must be paid from your IRA.

  • All income must be paid into your IRA.


Self-directed IRAs can seem intimidating, but they don’t have to be. The self-­directed IRA is a well-­kept secret with powerful tax-advantages that can offer needed diversification and big profits for your retirement portfolio. For the savvy investor, there’s a tremendous amount of benefits to take advantage of by investing through a self-directed IRA. Now that the best kept IRA secret has been revealed, the sky is the limit, and you are free to begin investing in any of the asset classes you choose.