A self-directed IRA is a powerful wealth-building tool, and it’s one of our favorite ways to invest in real estate.
You’re probably familiar with traditional retirement accounts, like a 401(k) or a traditional IRA. Those accounts keep your money in the same small circle of investment options, like stocks, bonds, mutual funds, and ETFs. These traditional retirement accounts give you a finite number of pre-selected funds to choose from, and you can only move your money between those.
A self-directed IRA is still a retirement savings account, but it gives you more control over where your retirement money goes and opens the door to alternative assets, like real estate.
We don’t hear many people talking about self-directed IRAs over the dinner table, even among our investment-savvy friends. So today, we’re going to start that conversation.
What Is a Self-Directed IRA?
A self-directed IRA is a type of IRA that lets you invest in conventional market-based options and alternative investments, like real estate, cryptocurrency, or precious metals. It works very similarly to a Traditional or a Roth IRA, and follows the same yearly contribution limits and withdrawal rules.
The big difference is that you get more control over where your money goes.
Common Self-Directed IRA Investment Options:
- Real Estate
- Oil and Gas
- Precious Metals
- Crupocurrency & Bitcoin
- Venture & Startups
- Private Funds
- Stocks, ETFs, and Mutual Funds
That wider menu is what makes the account “self-directed.” That’s the big reason people choose self-directed IRAs. They don’t want all of their retirement money tied to the stock market. They want more control and more diversification.
Opening a Self-Directed IRA
Using a self-directed IRA for real estate investing starts with opening a self-directed retirement account through a custodian that allows alternative investments. A traditional IRA or 401(k) provider like Fidelity or Vanguard usually won’t let you use your retirement money for real estate in the same way.
Our Favorite Self-Directed IRA Custodian
We use Directed IRA ourselves, and so do most of our investors. Directed IRA offers self-directed Traditional and Roth IRAs, along with other self-directed account options, and is built specifically around giving investors access to assets beyond the usual Wall Street lineup.
It’s an easy platform backed by a great reputation.
This is not financial advice, and we’re not saying it’s the only option out there. It’s just the one we know, the one we use, and the one we’ve seen work well for investors who want to use retirement money for real estate. Our investors also get a small discount on their annual fee through Directed IRA. We do not get a kickback for that. It’s simply a perk we can pass along.
Do your homework and find a custodian you trust.
How to Move Money To a Self-Directed IRA
Once your account is open, you fund it. That usually happens through a transfer, rollover, or a contribution from cash you have on hand.
Most of the time, you’re going to transfer it from one retirement account to another. We see a lot of investors who have job-hopped or retired from military service early and old 401(k)s and TSP accounts sitting around that they can no longer contribute to. Start there. Most investors we see are transferring that money into their self-directed IRA account from an old retirement account. You can often transfer multiple old retirement accounts too, if your custodian allows it.
Using a Self-Directed IRA for Real Estate Investing
Once your account is ready to invest, you choose the type of real estate investment you want to use it for. For some people, that might mean buying property directly. For a lot of our investors, it looks different.
Most of our investors are not trying to become landlords. They do not want to manage a property, deal with repairs, chase tenants, or take on all the moving parts that come with owning real estate directly. Many have full-time jobs. Others are retired from one career and are building a second life. They want real estate exposure, but they want it to be passive.
That is where our model comes in.
Our investors use money from their self-directed IRA to invest in Blueprint’s short-term industrial real estate deals. Their retirement account funds the investment. As the deal progresses, they receive dividend payments back into that same retirement account. Then, when the deal is complete, usually in 12-18 months, their principal is returned to the account as well. It’s a great option for people looking to do more passive real estate investing.
Whether you choose to invest in real estate in a hands-on or hands-off way, a self-directed IRA gives you the ability to use retirement money for something beyond the usual market-based options. It opens the door to real estate investing in a way that can match your goals, your lifestyle, and how involved you actually want to be. And for a lot of people, that flexibility is the whole point.
A Few Things to Know Before You Go This Route
A self-directed IRA is not automatically better than a traditional IRA – it’s just different. It opens the door to more investment options, like using your retirement funds to invest in real estate. But there are tons of ways to save for retirement or to invest in real estate. It’s important to understand what your goals are and if moving to a self-directed IRA helps you get there.
That’s really the bigger point of this whole article. You have options. A lot of people assume retirement money has to stay in the same lane forever. It doesn’t. A lot of people assume you need a 20% down payment in cash on hand before you can invest in real estate. You don’t.
If you want to understand how Blueprint investors use self-directed IRAs to invest in short-term passive real estate deals, read more in our article on private money lending here. If you’re ready to use your self-directed IRA to invest in real estate, book an intro call with us.
