4 Reasons to Invest with your SDIRA in Real Estate

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By Chris Clothier
April 26 2011

Every couple of weeks I get asked to write an article on Self Directed IRA investing due to the large number of transactions our clients close each month. I have always begged out of writing them because it is such a specialized field and there are so many qualified custodians that give great advice. After conducting a webinar last week for our clients with a great custodian, it dawned on me that there are certainly tips I can give to investors on WHY they should look in self directing their retirement account and out of that flowed this article.

In truth, there are many advantages, some are direct and others are a little more subtle, but these are four things you should absolutely consider if you would like to diversify and take control of your retirement funds.


Every day, regular people and seasoned investors alike are looking for ways to diversify their investments and investing in real estate has always been a favorite alternative. With Self Directed Individual Retirement Accounts coming into favor with investors, investing in discount properties has never been easier. I have put together a quick list of four of the top advantages to using Self Directed IRA's:

1. Typically, financial planners and retirement account custodians have fee structures, which are not always designed with the investor's best interest. I think that is putting it mildly. However, that is not the case with most Self Directed IRA custodians. While the fee structures will vary from company to company, they are typically very friendly to the investor's bottom line. Many range from between $50 for set up fees and either fixed amounts from $500 per year to a small percentage of the total account. By far, the fees associated with a self directed custodian are below your tradition investment account adviser.

2. When Investing in real estate with your SDIRA, you are in control of your gains and your losses, which can be very concerning for some but liberating for others. For investors working with companies who provide turn-key services, investing can be completely passive and often will result in a return on investment of between 9.5% and 11.5% year on year average. The value of investing in real estate instead of traditional investment opportunities is the tangible asset. That asset, building value, plus the return on your investment itself, makes investing in real estate with your SDIRA a huge benefit.

3. The benefits of investing in real estate with your SDIRA include tax-deferred capabilities and tax free growth capabilities. This is one you will want to consult your CPA on, but allowing your returns to grow either tax free or tax deferred are big bonuses for investors in higher tax brackets who are acquiring real estate as a mode to build wealth to pass on for future generations. In many tax deferred situations, by holding onto the property and selling at a future date for a higher return, you can use a 1031 Exchange to purchase a larger piece of property and grow your account faster. This is a strategy used by many investors seeking ways to build assets without tax implications today.

4. Real estate allows an investor to build an annuity within their SDIRA by providing a monthly cash flow. At the age of 59 1/2 there is no longer an early withdrawal penalty. Investors looking to use their IRA to fund their retirement can build wealth through owning real estate in their IRA and using the monthly cash flow as a natural retirement fund without eroding the principal or the underlying asset.

The bottom line is that using your SDIRA to build your net worth and prepare for either your retirement or passing your wealth to heirs is a great way to take control of your future. It is also much easier than some would have you think. The fact that you are in control of your finances and are able to direct when and where you make financial moves is a huge asset for many investors as opposed to leaving your future in the hands of someone else. I am in no way opposed to receiving direction and advice, but when it comes to investing in real estate, seek the advice from the experts and use a Self Directed IRA.

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