How I Discovered Self Directed IRA LLCs and Private Money Lending

There I was, going through my mail when I looked at my bank statement. Usually, I just throw the envelope in the shred bin and don't think twice about it. This time, for some reason, I opened it.

My credit union savings account was earning me a whopping 0.11% on the money. I only had about $30,000 in there at the time, and if I moved it over to a Money Market account, I could have earned .31%.  Wow. Aren't they generous?

I started to do some math, and found the Bankrate.com Savings Calculator. My $30,000 in savings would earn about $93 over the course of a year. Ouch.

In to the rabbit hole I go, looking into all of my money, and seeing how it has been performing.

I started thinking about the money I had in my old 401k, which was just sitting there in the mutual funds that I was allowed to use at my old employer. There were good quarters, and bad quarters, but overall, the investments were very "safe" - average returns or worse. I had a high paying job, I was actually an accredited investor at the time, but I was doing a crappy job with my investments.

The way I saw it, I had two choices. I could either find a financial advisor, and pay them to manage my money (which would keep me in stocks and mutual funds), or I could figure things out on my own and find a better way.

I started Googling.

I knew that I wanted to put my money to work in Real Estate. The stock market had been running up, and I had been burnt before in the market. I wanted tangible assets because even if a home's valuation drops, I still have the property. 

I discovered Self Directed IRAs.

Then, I discovered some of the more "exotic" options with IRAs, like IRA LLCs, which provide checkbook control over your retirement account. *Disclaimer* I am not a financial advisor, attorney, or CPA. You should totally talk to those people and develop your own investment comfort level. Moving on...

After some account setup and transfers, I was able to roll my 401k into an IRA at a Self Directed IRA Custodian and invest that self-directed IRA into an LLC. Now the LLC makes investments, and I don't have to ask anyone for permission to put the money to work.

What types of things can people invest in from their Self Directed IRA or IRA LLC?

• Trust Deeds / Mortgages
• Real Estate
• Private Stock
• Private Loans to Businesses or Individual People
• Tax Deeds and Liens
• Gas, Oil, or Mineral Rights
• Basically, anything the IRS allows

After looking at the options, I decided my favorite way to invest from my Self Directed IRA LLC is to put the money passively to work in Real Estate. I learned more about becoming a Private Money Lender and actually started lending Non-IRA funds. You cannot put the IRA money towards your own deals (or your spouse, parents, or children's deals), due to IRS Self Dealing rules, you need to find people to invest with that are not immediately related to you. However, two unrelated people can invest their IRAs into each other's projects.  

For some of us, that are full-time real estate investors, SD IRA LLCs are the best of both worlds. You get to be active on your own deals, with a Private Money Lender that you trust, and you get to be passive on someone else's deals earning a great return on your retirement while staying in first lien position - and enjoying all the Tax Benefits of IRAs and ROTH IRAs. Being a private money lender using a Self Directed IRA can truly be a Win-Win.