Private Equity Real Estate in a Self-Directed IRA: A Better Alternative to Bonds

There is little doubt that bonds have lost their luster over the past several years. Once an integral part of a balanced portfolio, they have become riskier than many investors realize. Low interest rates and inflation have combined to result in a negative real return on bonds. And in some parts of Europe and Japan interest rates have fallen below zero percent!  A Self-Directed IRA could be your answer.

If you are hoping for reliable income, less volatility, and inflation protection from your Self-Directed IRA portfolio, you should be looking beyond bonds to an investment that offers all of these advantages—private equity real estate, particularly commercial real estate.

Shielded from global risk and protected from inflation, commercial real estate investments can provide cash flow quickly and give you the security of a tangible asset, not merely a piece of paper but something (land and buildings) that you can see and touch. And real estate has shown amazing resilience, recovering quickly (and even increasing in value) after taking a stunning blow in the 2007-2009 recession that left other investments reeling for several years.

But don’t bonds provide “safety”?

Bonds have been the hallmark of safety for many years. You could put your money into Treasuries or Investment-Grade Corporate Bonds and feel safe and secure knowing that your principle will always be there. But there is a flaw in that “zero-risk” mindset: Bonds have an array of risks that many investors—both neophytes and the sophisticated—fail or choose not to acknowledge. Here are just some of them:

Interest rate risk: When interest rates rise, bond prices typically go down.

Inflation risk: If the cost of living rises suddenly, the rate of inflation could match or eclipse the interest rate on your bond, leaving you with little or no true return on your investment.

Credit risk: Corporate bonds depend on the company’s ability to repay their debt. There are no guarantees they will be able to do that.

Liquidity risk: While there is almost always a market for government bonds, corporate bonds can be hard to sell in a thin market, forcing you to take a lower price than you were expecting.

There can also be the risk that your callable bond will be called, causing you to reinvest at lower rates or that your bond may be downgraded, making it harder for you to sell it.

The case for commercial real estate 

Before making a case for commercial properties, here are some examples of them:

  • Office buildings
  • Warehouses
  • Retail buildings
  • Apartments (multifamily buildings)
  • Industrial buildings
  • Mixed-use buildings, which could be a combination of any of the above

Like bonds, there are certain risks associated with real estate investing, but commercial real estate typically offers more financial rewards than bonds. Real estate also comes with the benefit of less volatility, holding it in stark contrast to those investments that have fallen prey to illogical buying and selling patterns and unfounded valuations.

Investors have always been counseled on the importance of having safer investments as part of a well-diversified Self-Directed IRA portfolio. That advice becomes even more critical as we get older. Typically, bonds were touted as that “prudent” investment. But modern investors realize that they can invest in commercial real estate as an alternative to bonds, thus adding diversity and spreading out the amount of risk they are taking on.

The philosophy of keeping a portion of your portfolio in lower-risk investments remains appropriate today. But the method for achieving that is now up for debate, and commercial real estate as a vehicle for safe and diverse investing is winning the debate handily.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Why Technology is Important in Growing Your Self-Directed IRA

We understand that many people nearing or already at retirement age often do not have or do not rely on new technology within their everyday existence. If all you want to do is make a phone call, your phone could be just the thing. However, simple use of available technology could make a big difference in the value of your Self-Directed IRA whether you like it or not.

If, for example, you are devoting your Self-Directed IRA to real estate, you can benefit greatly by knowing how a few relatively simple steps can make a big difference with your retirement fund.

Chances are you are not going to find a buyer, rental candidates, or someone selling an ideal property for your plan by making a couple of phone calls or going through the local newspaper. Your best possible real estate investment may not be in your neighborhood.

Since you generally cannot live in or manage properties purchased or owned by a Self-Directed IRA, your best deal or buyer could be hundreds of miles away. This is where technology becomes a factor.

The National Association of Realtors reports that more than 70% of property searches around the country begin online. As a result of this, going online is the best resource of finding the right property for purchase based on your investing criteria. If you are ready to sell, or even rent out, a property you currently own, the most efficient way to attract your buyer or renter(s) is to showcase it on the internet.

Property information on the internet is updated constantly every day around the world. When someone lists their home for sale through a real estate agent, it appears on their listing service literally within minutes.

Thus, by the time the weekend newspaper or weekly magazine comes out (like we relied on years ago), many of the new listings may already have been sold.

When you have a Self-Directed IRA and are ready to buy, sell, or rent out, you want to be able to have access to any and all possible deals. You need to be able to make inquiries and responses as soon as possible in today’s world. It is your hard-earned money at stake.

There are ways to grow your Self-Directed IRA without owning a computer and/or a smart phone. You do not have to look at photos of your son-in-law’s dinner from last night or take a training course in operating a laptop from your downstairs desk.

Your local librarian, or a friend or family member with a computer or smart phone can help you with this. If you do have a computer or smart phone with online access, you can search for what you need on your own whenever you have the opportunity.

When you have the old-fashioned IRA which only pays a tiny percentage from fund investments, it is no problem for the originating company to mail out a mountain of paperwork containing a bunch of numbers you do not understand each month. There is rarely any major change from one quarter to next with your earnings.

However, if you are able to acquire a house for $100,000 and can sell it three months later for $125,000, you need to have the technology of reaching potential sellers and buyers available to you when you need it.

In addition to searching for what you need, this technology can also help you to find the buyer, seller, or renter you need.

You can use various real estate web sites, as well as social media, to get connected with buyers, sellers, renters, lenders, appraisers, home inspectors, real estate attorneys, and other related services. You might be able to connect with a partner you could invest your Self-Directed IRA funds with and who is able to help grow the property investment for you.

It does not matter if you have a computer in every room of the house or need to go to the local library once a month to use theirs and have the librarian help you. The key is to be able to leverage the technology which is available now to your advantage.

Using the selling a property for $125,000 three months later as an example, this likely would not happen if you did not use technology. You might not have found the discounted property and/or a buyer willing to pay the full price away from the internet. Without your own Self-Directed IRA, you could not take advantage of this opportunity without taxes getting in the way and possibly even killing the deal for you. A Traditional IRA or 401K is most likely not going to earn a full 25% total value within a 90-day period.

The more you embrace the technology, at any age, the better off you will be in terms of increasing the value of your retirement funds. Again, it is not a requirement that you own a computer or smart phone in order to do so.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Supercharge Your Self-Directed IRA Savings

It is one thing to open a Self-Directed IRA account. It is another thing to be diligent about funding it to the max, year in and year out. But every dollar you can sock away in a Self-Directed IRA account now increases your chances of achieving an economically secure retirement, sufficient to provide a reliable income for the remainder of your life and the life of your spouse.

How Much Do You Need to Save?

No one has a crystal ball, but the general rule among retirement professionals is that savers must sock away 15 to 20 dollars in retirement savings per dollar of annual income you need. That is in addition to any income you may expect from Social Security and pensions. For example, if you want to have a retirement income of $100,000 per year, and you expect a combined $50,000 in Social Security and pension income, your Self-Directed IRAs and other retirement savings will need to generate the other $50,000. That amounts to a target nest egg of between 750,000 to $1 million.

Looked at another way, unless your Self-Directed IRA is generating substantially above-market investment returns, for every $100,000 you want to generate in reasonably reliable income from your investments during your retirement years, plan on amassing a total nest egg of $1.5 million to $2 million.

It is doable – especially if you start saving aggressively while still relatively young. Consider:

Assuming you contribute the current maximum annual contribution to a Self-Directed IRA, and you are able to earn an average of 6 percent per year, it would take 42.51 years to save $1 million. If you can get an average return of 8 percent, it would take 35.65 years to save that amount, with an annual contribution of $5,500.

But you are not limited to that $5,500 per year ceiling on Self-Directed IRA contributions: If you are married, you can contribute another $5,500 per year to an IRA, in the form of a “Self-Directed Spousal IRA.” This is true even if your spouse does not work. So now you can contribute up to $11,000 per year to a traditional or – if you meet the income requirements, a Self-Directed Roth IRA.

But if you own your own corporation or LLC, or if you have self-employment income, you can turbo-charge your retirement savings even more. For example, you can start a Self-Directed Solo 401(K) plan for yourself or your small business (with only you or your spouse as full-time employees), or a simplified employee pension plan – both of which enable you to increase your contributions to more than $50,000, given enough income, though Self-Directed SEP IRAs limit your contributions to not more than 25 percent of compensation.

The combination of Self-Directed IRAs and small business retirement plans allow self-employed individuals and small business owners to boost tax-advantaged retirement savings to more than $65,000 per year – and potentially double that figure, in the case of high-earning couples who own their own businesses.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Real Estate Self-Directed IRA Investing in Hawaii

Hawaii’s mild year-round climate and unparalleled natural beauty make it a potentially attractive place for Real Estate Self-Directed IRA investing. Land is scarce and in high demand – and the demand is increasing as Hawaii’s population continues to grow. This creates a natural support for real estate prices. Even as the nationwide market cools off, Hawaiian luxury real estate properties continued impressive double-digit gains in 2017: 33 percent on Maui, 25 percent for Kauai and 24.8 percent for the ‘big island’ of Hawaii.

But there are some very important factors specific to Hawaii that any Real Estate Self-Directed IRA investor should understand before getting involved.

Leasehold vs. ‘fee-simple’ land

Land and politics in Hawaii are closely intermixed. When the Hawaiian monarchy was overthrown in 1898, hundreds of thousands of acres of developable land belonging to the Hawaiian Royal Family were eventually transferred to the Bishop estate and are managed for the benefit of the Hawaiian people.

Many homes in Hawaii are on Bishop Estate land, and Real Estate Self-Directed IRA homeowners do not retain permanent title to the land, but instead enter long-term leases, or take over leases from existing homeowners. Leases are typically decades long, though lease rents are usually reevaluated periodically – every 10 to 15 years. Eventually the lease expires, and the land undergoes ‘reversion’ back to the control of the landlord – at which time the lease is renegotiated, or the landlord decides to go with another tenant.

The term ‘fee simple,’ on the other hand, indicates that ownership of the land is permanent – the Real Estate Self-Directed IRA investor is purchasing the land outright, along with the house.

Real Estate Self-Directed IRA investors should be keenly aware of whether the property they are buying is leasehold or fee simple land.

If you see a listing for ‘fee available’ property, this indicates that the landlord is willing to sell the land outright – at the right price.

Fee simple land is typically more expensive than an equivalent plot of leasehold ground. The remaining number of years on the lease may also be an important factor in obtaining financing or finding a buyer. Financing is nearly impossible to obtain as the remaining lease term gets under 10 years, so the Real Estate Self-Directed IRA buyer may have to find a cash buyer.

Hawaii also has a state income tax, so if you become a Hawaii resident, or you are generating rental income from a property in Hawaii, be prepared to take an income tax haircut of up to 8.25 percent on income over $48,000 per year (single filers) or $96,000 (for married couples filing jointly.)

Property taxes can also be significant – $4.50 per $1,000 of appraised value in Honolulu up to $ million in value, and $9.00 per $1,000 of appraised value in excess of $1 million. So, property taxes on residential real estate are more significant for higher-priced homes. And with median home prices on the island of Oahu now nearing $800,000, it is very easy to find yourself with a home value of more than $1 million, and an increased tax liability, which you will need to pay from within your Real Estate Self-Directed IRA until you are at least age 59½ years old

Real Estate Self-Directed IRA investors should be very aware that they will need to adjust for property taxes and state income tax on income from Real Estate Self-Directed IRA investment properties.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Private Equity Investing – A Primer for Self-Directed IRA Investors

Many people we speak to are unaware that the Self-Directed IRA and other retirement accounts are flexible enough to allow for all kinds of different asset classes. You do not have to limit your thinking to stocks, bonds, mutual funds and CDs. You can leverage the substantial tax advantages of Self-Directed IRAs while investing in a wide variety of alternative asset classes. And one of the more lucrative and popular asset classes in recent years has been private equity.

If you are new to private equity investing – especially within a Self-Directed IRA – here is a list of the most common terms.

Private equity is stock ownership that is not listed on a public exchange. These are not necessarily corporations; Private equity ownership is not necessarily limited to C Corporations. Some private equity opportunities are formed as limited partnerships and LLCs.

Occasionally, the term is used to the purchase of a publicly-traded company by investors who then take it private in order to unlock shareholder value or minimize the likelihood of outside interference from activist shareholders.

It is entirely legal to own most private equity investments within a Self-Directed IRA, provided you do not own S Corporations, nor take direct ownership in a prohibited investment class, such as life insurance policies, collectibles, art, jewelry and gemstones, certain forms of gold and precious metal coin and bullion of uncertain or insufficient purity, and assets purchased from a prohibited party (yourself, your spouse, ascendants or descendants, and from professionals who advise you on your Self-Directed IRA in fiduciary capacity.)

As a Self-Directed IRA investor, you can hold shares in specialized private equity or venture capital funds, or you can choose to seek out your own investment opportunities and hold them directly, either within or outside of your Self-Directed IRA.

Primary capital raises. An initial round of funding by selling an equity interest to private buyers, rather than floating shares on a public exchange. When a private equity fund does this, they typically package a series of investments as a ‘blind pool.’ Owners typically hope to sell the investment for several times what they paid for it. But assets are often tied up in the investment for a number of years. Furthermore, risk is high throughout the private equity world. Many investments can and do lose money.

Secondary raises. These are follow-on rounds of capital raising designed to provide additional capital to enable a company to continue on a growth path. Time horizons before expected capital return are much shorter than with primary capital raises.

Private equity investing is not for novice investors. Unlisted securities may not have much in the way of a prospectus. Investors have little recourse when it comes to unregistered securities. But the high risk is the key to market-beating returns. However, whether you invest directly in a company via a private equity offering or you invest in the asset class via a fund, you should conduct a thorough due diligence before you invest.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Self-Directed 401(K) Loans

Generally, a participant is not permitted to make a withdrawal from an account under an employer-sponsored retirement plan, until that employee experiences a triggering event[1]. A loan is an exception to this requirement, allowing employees to take loans from their account balances under an employer sponsored retirement plan regardless of whether they experience any triggering events.

Loans are available to an employee, only if the employer’s plan includes a feature allowing loans.

Loans may not be made from Self-Directed IRAs. Loans may be made from accounts under employer sponsored retirement plans[2].

A loan is nontaxable, providing it meets statutory requirements, which include limitations on the amount and repayment periods.

This document provides an overview of the rules that apply to these loans.

Self-Directed 401(K) Loan General Loan Requirements

The following are the general requirements that a loan and loan program must meet:

  • Must be made available to all participants and beneficiaries under the plan on a reasonably equivalent basis;
  • Must not be made available to highly compensated employees, officers or shareholders in an amount greater than the amount made available to other employees;
  • Must be made in accordance with specific provisions regarding loans as provided under the plan;
  • Must bear a reasonable rate of interest; and
  • Must be adequately secured.

Self-Directed 401(K) Maximum Loan Amount

The maximum amount that a participant may borrow is the lesser of:

  • 50% of his/her vested account balance, or
  • $50,000

A plan may allow a participant to borrow up to 50%, even if it is more than 50% of that participant’s vested account balance. However, the dollar amount can never exceed $50,000[3].

A plan may allow participants to have multiple loans (per participant) from the plan at the same time. In these cases, the plan administrator must perform a more complex calculation to ensure that the outstanding loan balance does not exceed statutory limit.

Self-Directed 401(K) Repayment Period

Loans must be repaid in substantially equal amounts that include principal and interest, and repayments must be made at least quarterly.

The payment period should not exceed 5-years, unless the loan was taken for the purpose of purchasing the employee’s principal residence.

For loans taken by employees performing military service, repayments may be suspended.

Self-Directed 401(K) Deemed Distributions and Offsets

While loans are generally not treated as distributions, exceptions apply. Under these exceptions, a loan can be treated as a deemed distribution or an offset.  And, whether the amount is eligible to be rolled over depends on whether it’s a deemed distribution or an offset.

Deemed Distribution

A loan that fails to meet the statutory requirements would be ‘in default’. Examples include loans that exceed the statutory limit and the permitted repayment terms.

A loan that is in default is generally treated as ordinary income to the participant, with any pre-tax amount being taxable.

A deemed distribution is not a true distribution, and therefore cannot be rolled over.

The Plan Document should be consulted to determine when a loan becomes a deemed distribution, and how deemed distributions should be handled.


An offset typically occurs when a participant’s employment is terminated with the employer, and the participant has an outstanding loan balance. If the loan is not repaid, the participant’s account balance can be offset (reduced) for the outstanding loan amount.

An offset is a true distribution, because it occurs as a result of the participant experiencing a triggering event. As such, it can be rolled over (as long as the amount is rollover eligible).

If a plan loan is offset against a participant’s balance, the amount can be rolled over within 60-days. However, if the offset occurs as a result of the participant’s termination of employment or the termination of the plan, the usual 60-day period for completing rollovers is extended to the participant’s tax filing due date, including extensions, for the year in which the offset occurs[4].

Self-Directed Solo 401(K) Plan Administrator Services Required

The administration of loans is a complicated process, and the services of a plan administrator should be engaged to ensure compliance with regulatory requirements as well as to ensure that loans are handled in accordance with the terms of the governing plan document.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at


[1] Meeting a requirement to make a withdrawal, such as reaching retirement age or no longer working for the employer

[2] Qualified plan, such as a 401(k) or pension plan, 403(b) and governmental 457(b)

[3] Exceptions can apply. For example, the dollar limit was increased to $100,000 and the percentage limit increased to 100% for plan participants affected by Hurricanes Harvey, Irma, or Maria- from August 23, 2017 (affected by Harvey), September 4, 2017 (affected by Irma), or September 16, 2017 (affected by Maria), through December 31, 2018.

[4] Tax Cuts and Jobs Act (Pub. L. No. 115-97)

How to Own an LLC Within a Self-Directed IRA – And Do it Right!

Many people are surprised to learn that you can own limited liability companies (LLCs) within a Self-Directed IRA. It is true, there are certain things you cannot own within a Self-Directed IRA, including S corporations, collectibles, art, alcoholic beverages, jewelry, gems and life insurance. But it is perfectly acceptable and legal to own an interest in an LLC, or even a whole company outright within your self-directed retirement account. Indeed, thanks to the growing interest investors have in leveraging the tax advantages of self-directed retirement accounts with the flexibility afforded by LLCs, the number of people owning LLCs within Self-Directed IRAs is rapidly growing.

LLCs have the advantage of allowing the owner to execute “checkbook control” of his or her investments using Self-Directed IRA money. But it is not necessary to do so and doing so can potentially increase the chance of accidentally running afoul of laws and regulations that prohibit self-dealing using IRA funds. Keeping a very strict separation between your own money and that which belongs to your Self-Directed IRA and the LLCs and other entities within it is critical to staying out of hot water.

If you believe an LLC may be right for you, here are a few things to keep in mind before you get started:

  • Make sure to name the LLC as part of your Self-Directed IRA account, and not in your own personal name. Putting it in your personal name, rather than listing the IRA or other retirement account as the owner, could put the tax advantaged status of your Self-Directed IRA at risk. The same goes for the LLC’s bank accounts, and any other accounts it may have.
  • Get a separate employer identification number for your Self-Directed IRA. Do not use your Social Security number.
  • If you own property within a Self-Directed Real Estate IRA LLC, be sure to use the LLC’s checking account to pay all expenses associated with the property, from maintenance costs to property taxes to mortgage payments. If you elect not to use the Checkbook IRA technique, have American IRA, LLC handle the transaction for you, in a way that is compliant with IRS regulations and applicable laws.
  • Have all rental income and other cash inflows go directly to your Self-Directed IRA’s account, and not your account. Do not collect rent payments directly or route them through your own accounts, or you could accidentally engage in a prohibited transaction, resulting in the possible forfeiture of the tax-advantaged status of your retirement account. This could result in substantial immediate tax liability, plus penalties and attorneys’ fees.
  • Do not try to pay yourself a salary or take any other form of compensation for managing your Self-Directed IRA or any LLCs within it.
  • Do not stay overnight in the property your Self-Directed IRA LLC Do not vacation in the property or allow your children, grandchildren, spouse or advisor who works with you advising you on your Self-Directed IRA to use the property. This would be considered a prohibited transaction.
  • Do not move personal funds into the Self-Directed IRA LLC’s checking account.
  • American IRA requires that all Single-Member IRA LLC documents be prepared by a qualified professional with an understanding of Self-Directed IRAs and LLCS. Self-prepared documents cannot be accepted.  Checkbook Control IRAs require a specialized operating agreement.  For more information please contact American IRA.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Should You Take an Early Distribution from Your Self-Directed IRA?

You need a financial lift. It is alright; everyone gets blindsided by a large expense at some time or another: your 30-year-old furnace gives up the ghost two weeks into winter, your car’s purring engine is sounding more like a death rattle, or your daughter has requested to have her wedding reception at that exclusive country club.  A Self-Directed IRA could be your saving grace.

Yes, you are facing a bill that could easily run into tens of thousands of dollars, and you are not prepared for it. What can you do?

Sometimes, people in desperate straits look to their Self-Directed IRA for a solution. After all, retirement is not for another fifteen years or so. That is plenty of time to replace those funds before you need them.

If this sounds like the perfect answer to your dilemma, you need to take some time to consider all of the imperfections in it. Here are a few reasons why this short-term solution may end up being a long-term headache:

Taxes and penalties

If you are thinking about withdrawing money from a Traditional IRA and you are younger than 59 ½, you will pay a 10% penalty for starters. So the $20,000 that you need for the new heating system will incur a $2,000 penalty!

But you are not finished paying because now the taxes are due on all the funds that helped you save on taxes when you made those contributions. Depending on your tax bracket, you might have to withdraw around $28,000 from your account to net the $20,000 you need, which means your penalty will be even higher.

If you are taking a distribution from your Self-Directed Roth IRA, you will pay a 10% penalty on any earnings from the account if you have not turned 59 ½ or held the account for at least five years, whichever comes later. Remember, this applies only to the earnings on a Self-Directed Roth IRA. Withdrawals from Roth contributions are always penalty-free.

The most painful cost to you

Take the example of a 48-year-old individual who withdraws $28,000 to pay for a $20,000 purchase. Not only will they pay a $2,800 penalty plus taxes, but they will also lose the opportunity for the future growth of those funds.

If that money had remained in the account and been allowed to grow at a modest rate of 5% for the next 20 years, the $28,000 would have grown to a whopping $74,292! They will have missed out on both the power of compounded interest and on a comfortable retirement.

You can avoid the penalty under certain conditions

While there is no way around paying the taxes and losing out on the growth of your funds, you might avoid the 10% penalty under certain circumstances:

·         You make the withdrawals on or after the day you turn 59 ½ years of age.

·         You are using the money to pay medical insurance premiums during unemployment.

·         You are using the Self-Directed IRA funds to pay non-reimbursed medical expenses that exceed 7.5% of your AGI.

·         You have become permanently disabled.

·         You are a first-time home buyer withdrawing $10,000 or less.

·         You are covering qualified higher education expenses.

But it is my money. Why can’t I have it without penalty?

The early withdrawal penalty is meant to discourage retirement account holders from depleting their retirement funds to solve some short-term problem, leaving them dependent on some form of welfare after they reach old age.

After the government enacted the so-called do-it-yourself retirement system, the Self-Directed IRA early withdrawal fee was attached to encourage savers to stick with the plan and reap the rewards of many years of compound interest and growth in their portfolios. For all those reasons—a hefty penalty, taxes due, and the lost opportunity to accumulate capital—it is practically always a bad idea to cash in your Self-Directed IRA funds.

At American IRA, we believe that Self-Directed IRAs are the best vehicles for growing your retirement account. And we have the experience to handle your transactions, no matter which direction you choose to go with it.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Due Diligence Checklist for Self-Directed Real Estate IRA Properties

Real estate deserves consideration in anyone’s long-term investment portfolio. Some investors are content to expose themselves to real estate via REITs and straight-ahead stock companies within a larger retirement portfolio. Many of our own clients find they can get better returns on investment via direct ownership of investment properties within their own retirement accounts, using a Self-Directed IRA, Self-Directed Real Estate IRA, Self-Directed Solo 401(K), Self-Directed SEP IRA or Self-Directed SIMPLE IRA account. They simply use the cash in these accounts to purchase investment property and hold it, with their IRA collecting rents and paying expenses.

After working closely with hundreds of successful Self-Directed IRA landlords – men and women who own real estate directly within their retirement accounts – we have come up with some important hints and tips for finding profitable investment properties with a relatively low degree of risk.

  • Compile your own comps. Do not trust the big internet sites like Trulia and Zillow for estimates on what any specific home may be worth. First, everyone else has access to that data, so you will not be at any significant advantage by relying on it. Second, there is no substitute for strong local knowledge of the neighborhood – something that no large nationwide database can provide. Compile your own comps, or work with an agent who has extensive experience with homes in this particular area. Better yet, consult a professional appraiser.
  • Hire a building inspector. Most real estate investors – even experienced ones – inspect just a few homes a year at most. A professional building inspector visits hundreds of homes each year. Few ordinary investors can match that kind of experience, which can normally be had for just a few hundred dollars. That experience can also save you from incurring thousands and even tens of thousands of dollars in needed repairs and renovations, which could destroy the profitability of your Self-Directed Real Estate IRA property.
  • Work with a title company. This is the most reliable way to ensure that your new Self-Directed Real Estate IRA investment property has a clean title, free of encumbrances from unpaid property taxes, contractors’ liens, old mortgages, claims from heirs and estate beneficiaries, lawsuits and judgments or pledges as collateral.
  • Be skeptical of pro forma Occasionally, sellers will show you pro forma accounting documents that show various earnings and profitability projections. These are nice but consider them an absolute ‘best case’ presentation. In 99 percent of actual cases, the Self-Directed Real Estate IRA property will show income and expenses substantially lower than what the pro forma numbers assumed.
  • Look over key property management documents. You will want to look at the previous owner’s rent rolls and compare them to bank statements. Do rental collections match the actual bank statements? Are rents claimed on the rent roll but do not show up on actual bank statements? Does the discrepancy match the non-payment rate?
  • Account for renters’ deposits. State laws vary, but the general rule is landlords must keep renters’ security deposits in segregated accounts. Before you purchase a rental property, ensure your account for each tenants’ deposit in full and that you have access to these accounts, so you can release them to the renter as required by law, or use them to offset expenses that the deposits are intended to cover.

 Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at