I love investing in my IRA and I think it is the most powerful tool to build wealth in real estate. It allows you to grow significant wealth and it also allows you to continue to build a portfolio without taking up a significant amount of time. This time freedom is why I invest in real estate in the first place. Since you can’t benefit from your IRA investments until you are of the legal age (without penalty, that is), you must have it managed by a property manager. You can’t even change a light bulb on your own. You have to hire everything out. I like that because it allows me to continue to scale and I see my IRA growing in a way that I never even thought was possible.
Just to give you an example, I self-directed my IRA and purchased real estate while my husband had his invested in mutual funds. We both started out with about the same amount of money in it, but mine made more in a month than his did in a year. I have also never seen mine decrease in value since it’s been in real estate.
The first property I bought in my IRA is a true 2% property, meaning that the monthly income is 2% of what I bought it for. This one property alone brings in over eleven hundred dollars a month. It’s a duplex in Marion, Illinois that I bought for $65,000- each side rents for $650 and after paying property managers, I add $1170 to my account every month. After collecting that income for a year, I invested in another syndication that pays me an additional $1200 per quarter. 6 months later, I did it again and get paid another $1000 per quarter. My initial $70,000 IRA is now conservatively worth over $130,000. This is a super powerful way to build wealth!
I am consistently getting a much higher return of investment and I’m in complete control. I’ve decided where I invest and what I invest in. I decide what my returns are. I have all the power and probably spend, at most, an hour per quarter on accounting. For those reasons, I think this is a really powerful tool. Additionally, your IRA is naturally protected from you, your tenants, and creditors. If you get a loan on the property that you purchase in your IRA, it has to be a non-recourse loan which means that the lender can go after nothing but the property.
This principal does not apply to other loans. When you buy your personal residence, for example, if you were to default on that loan, the lienholder or lender, is going to go after every single thing that you have to your name in order to get back every penny that you owe them. It’s not like that with your IRA, there is an additional layer of protection built in.
If you’re compelled, self directing your IRA is pretty easy.
First, find a self directed IRA custodian or you can set up your own LLC.
When choosing a custodian, keep an eye out for the fees. Make sure you fully understand what you’re getting into. My traditional IRA costs me $400 a year and my Roth IRA costs me $250 a year. It’s more than worth it to me because I can’t benefit from this now. I don’t want to put any time into it but just want to see it grow.
Those custodians essentially manage your checkbook. If you need to pay somebody to do a repair or you need to pay someone to cut the lawn or your utilities, you request that money through your custodian and they cut the check and they keep account of all of it.
It takes a little bit longer to get stuff done but ultimately, your custodian is going to make sure that you’re doing everything right and you’re not doing anything illegal. If you don’t know anything about what you’re allowed to do in an IRA and you don’t want to spend the time getting to learn or getting to know it, find a custodian. When shopping for custodians, call the sale department and say, “What can I do in my IRA?” See what kind of feedback they give you so you know what your parameters are while also learning a lot about the company, their knowledge and customer service in the process.
After that, if you don’t have enough to purchase property, you can do one of two things: you can either invest in a syndication or borrow the money needed to purchase. Syndications are simply pools of funds that various investors bring together. Some syndications will allow you to invest as little as $25,000, even less, and you can get pretty significant returns and own a portion of an asset. You can also leverage that money and find a lender that will get you a loan against that IRA.
Typically, those loans have a higher interest rate and also more of a down payment. The down payment may be 30%, 35%, or even 40% down because that’s a non-recourse loan and the lender needs to protect themselves.
Once you have found a deal, you simply purchase the property just like you would buy any other asset. It’s going to be deeded in the name of your IRA and also list your custodian. Your custodian will assign a liaison to your transaction. This person does most of the work. In some ways, it’s even easier than doing a transaction outside of your IRA.
That’s it! It is that simple.
- Find a custodian for your self directed IRA.
- Find a lender or a syndicator if you need it.
- Start looking for properties.
- Buy a property in your IRA.
- Get paid!
- Maximize your returns- there’s no cap on how much you can earn.
- Continue to contribute!
If you have any questions let me know. If you need anything, I’m also going to have my calendar link if you want to have a conversation with me about this. Please schedule it and talk to you guys, soon.
To help you get started, check out my Real Estate Investor course!
[…] is the second buy-and-hold property that we bought. I self-directed my IRA and purchased it outright with the funds in my IRA. I purchased it for $65,000. It’s now […]