3 Solid Strategies for Investing With a Self-Directed IRA

by | BiggerPockets.com

When I was first introduced to self-directed IRAs, I happened to be at a REIA meeting, seeking strategies for funding my real estate deals. I had acquired a certain amount of doorways, and the bank was cutting me off.

I saw that people were lending from their IRAs to other rehabbers for their deals. They were making 15% in their IRA with points, and the investment (loan) was backed by collateral (property). That just made sense to me.

Up until that point, I had gotten beaten up in my own retirement account with the traditional investment vehicles. I didn’t even know you could have a self-directed account. Now, I utilize several strategies for investing from my IRA, such as notes, flipping houses or investing in shares of LLCs that do commercial real estate.

Related: Why You Need to Start Your IRA NOW…and Any Other Tax-Free or Tax-Deferred Vehicle You Can

With a self-directed IRA, you as the account owner are in control of keeping your money working for you. In fact, you could even have a checkbook IRA, which is great for those, who want to limit IRA custodian fees and have the freedom of checkbook control to do deals quickly and efficiently (just be careful not to run a business from your IRA or become too active in the account).

Yet I’m always amazed at how much IRA money is sitting idly in people’s accounts, out of sight, out of mind, doing very little. I’ve had this discussion on more than one occasion about the fact that millions and millions of IRA dollars are just sitting around looking for the next investment.

So, what are the easiest investment vehicles to utilize from a self-directed account?

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When it comes to investing with your IRA, I don’t think it gets much easier than using notes as the vehicle. The paperwork is quick and simple, there’s no transfer tax (often times no income tax, especially in a Roth), and it can be done with small amounts of money.

Just think about Lending Club, where half of the country can invest in small notes for as little as $25 from their IRA account.

If you invest in performing notes, it can be a very passive experience. For example, investing in a secured residential mortgage backed by hard real estate becomes much easier when utilizing a licensed servicer.

Utilizing a licensed servicer for your note is similar to having a property manager for your rental property, except it can be more affordable and scalable. The servicer also helps you stay out of trouble by maintaining compliance with federal regulations and keeping you safe with your IRA account, as you don’t want to become a disqualified retirement account entity because you were deemed to be too active in your note management or collections role.

Private Lending

Private money is another great way to obtain funding for your real estate deals. It really pays to become well-versed in IRA account investing, so you can teach others about how they can invest in real estate with you. Demonstrate all the advantages of IRA investing, and once they realize all the options self-directed IRA accounts allow, you’ll soon have more money than deals.

Believe it or not, lending out private money to others is a great way to get others to lend money to you.

Some people struggle with how to re-invest their returns, but a good thing to remember is that you can combine IRA accounts with each other or combine them with regular money in order to make larger investments. Just be sure to title the assets in the correct proportions.



Options are another great investment in your IRA. If you’re a house flipper, I could never understand why you wouldn’t be using your IRA account to improve the tax situation. What’s the point of giving a third or more of your money to the government?

You can also put an option on a property titled in your IRA, and then sell the option to a rehabber buddy, who pays a premium to your IRA for the right to buy it, rehab it and either keep it as a long-term buy-and-hold or sell it retail.

Why would you give away your good deal? It’s because your buddy might return the favor to you or another party in your circle of rehab friends, in order for all of you to build your retirement accounts together by the use of options.

Whether you’re investing in small notes on an online platform, doing rehab funding for friends or just investing passively in performing, institutional notes, it’s easy to see why notes are my favorite IRA strategy.

So, what’s yours?

Don’t forget to leave a comment below!

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for over 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.


  1. margaret smith on

    Hi Dave,
    Great post. I do hard money lending from my SD-IRA, and by now I pretty much have all the forms and procedures down for the lending doc set. There is quite a process to it all. Each investment is a little to a lot different, so it is not a passive activity. If you have bought, rehabbed, sold or held real estate, this might be a great way to go, as each loan deal must be vetted, and a seasoned eye with the right questions to ask is essential to success. Having a great team takes a while too- attorneys to draft and vet docs, title agents to pull title and get properties closed, inspectors and surveyors who can get to the property quickly, etc. I don’t know about buying existing notes, as I am not sure how one would do the right amount of “due diligence” to feel secure with that. I don’t advertise, just network, and am now finding I have repeat business with clients I love and trust– such a nice place to be, esp as one gets closer to a retirement age– no sanding and spackling here!

    • Dave Van Horn

      Hi Margaret,
      Thanks for your comment. I agree that seasoned real estate investors may have an easier time transitioning to lending hard money, especially when it comes to determining After Repair Value, how much construction is required, what the draw schedule should be, etc. I’ve found that the experience is more streamlined when I lend to people I know and trust, who are also handy. I’d rather have hard money deals in my IRA in retirement too.

      Also, I agree with you that it’s easier for someone in retirement to lend hard money from their IRA than to be managing many real estate properties.

      Good luck!

  2. I set up my SDIRA in 1996 and have seen my IRA grow incredibly. My CPA thought I was crazy when I first got into this. It’s amazing how many Financial people are not familiar with self-directed. I have lent $$ on notes, bought mobile homes that I have done lease options with, invested in mobile home park acquisitions, and most recently doing my vacation rental business with SDIRA’s. I thought I was doomed when the banks pretty much cut off lending to self-employed people like myself after 2008, and even with a FICO of 828 could not get traditional financing…..but it just got me back to doing SDIRA investing, and now I do it with OPM too. All very exciting.

  3. Nathan W.

    Dave: I like this idea but I have a question about the SDIRA and the “passiveness” of house flipping. Flipping houses doesn’t sound to me at all like a passive activity, even if you aren’t the one out there swinging the hammer. Do you mind sharing what role you play in the acquisition, rehab, and selling of the flip to avoid having that account disqualified?

  4. Dmitriy Fomichenko

    Hello Dave,

    Thant’s an excellent article. In addition to notes and private lending, self-directed IRAs are allowed to invest directly in real estate and allows the plan owner to achieve true diversification. Considering the current market conditions, investing in real estate makes sense, let it be passive or active.

  5. tonya cox

    I am brand new to REI meaning I haven’t done any kind of deal yet. I attended a 3 day conference to begin learning more about investing and where to get started. I left overwhelmed which brought me here. Before I attended the conference I had never even heard of a SDIRA.

    So I’ve been here soaking up as much info as I can.

    I thought I’d start with rolling over available old 401k into a SDIRA and use those funds to invest in a rental property. Now I’m unsure.

    Any advice?

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