We see stories in the news all the time about criminal activity milking millions of consumers out of large and small sums of money. We all need to be even more careful when it comes to our Self-Directed IRA account.
Perhaps the biggest lesson came a few years ago when the owner of a large chunk of commercial land in Texas perpetrated rumors that the Disney people were looking to develop a theme park along the line of DisneyLand in that area.
Based on this “information”, several large commercial developers invested in what they were told was land surrounding where the Disney people were expected to build. They wanted to be able to develop hotels, restaurants, and everything else that families want near a Disney property.
However, there was no truth to the “news” that Disney had any plans to build there. The discovery of these lies was not discovered until several developers had spent millions of dollars on land which had much less value than they were told.
What does this have to do with a Self-Directed IRA?
If that scenario can happen to multi-million-dollar investors with teams of executives, this could happen to you and your family as investors dealing with some or all of your retirement money.
Even though the criminals in the Texas Disney scandal were eventually caught, several of those that invested under the false pretenses lost at least part of their money.
Back in December 2017, the Securities & Exchange Commission uncovered a scandal which generated more than $1.2 billion invested into a line of what proved to be unregistered securities. The majority of those who invested into this fraud were seniors, many of whom lost all of their retirement money.
That amount all came from consumers located within the state of Florida alone.
When you have your Self-Directed IRA, you have the flexibility of making your own investment decisions in terms of real estate and/or business interests you purchase in order to grow your funds.
This is why you need to exercise extreme caution and check into every detail before you make any payments.
Chances are you have or had a Traditional IRA or 401K plan, which are often administered by a management company retained by the employer, union, or other professional organization.
Those entities handle the due diligence process prior to making the various investing opportunities available to their clients.
However, while the Self-Directed IRA allows you the opportunity to invest with a higher rate of return, you, in turn, take on the responsibility of having to live with your decisions regardless of how well they work for you.
There are due diligence steps that you can take to ensure that an investment you are considering is a legitimate opportunity for you.
- If you are considering investing in a real estate trust fund or holding company, you can check with the Securities & Exchange Commission. You should also do online research. Look for any complaints or inconsistencies in information they distribute including a company web site.
- There are ways to research prior to making a purchase, or even making an offer, on a specific property. You can review comps, which are comparable prices of similar nearby properties, by looking at web sites such as Realtor.com.
- In the event that a builder or developer is involved, you should research their recent transaction history. If a contractor is involved, you should check with the city or village in which the property is located to verify that the company is actually licensed there.
- If it is not a property you can easily go and see for yourself, it is all the more reason to be careful. Unless you know for a fact that the company is reliable, do not invest in anything out of your area or out of state.
You should also research the community surrounding a potential real estate investment. There is the scene in the TV show from many years ago called “The Honeymooners”. Alice is complaining to Ralph about the time he bought a parking lot across from a movie theatre and how badly that investment turned out.
“How did I know they were building a drive-in?” was Ralph’s response. Good for a laugh, but a lesson for all of us in the process.
Make certain that you treat your Self-Directed IRA at all times like it is your own money. After all, it is.