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Creative Investing Using a Self Directed IRA

While my son is asleep for the night and my wife is packing her bags in preparation for a trip to Las Vegas with the girls, I figured this was a good time to sit down and write a mid week blog post. I will do my regular update on Sunday, but last week I mentioned my Self Directed IRA (SDIRA) and I thought they deserve a whole post to themselves. So, this will just be a brain dump on what I know about them and how I use mine.

A lot of people, including myself up until a few years ago, think that all they can do with their retirement accounts is invest in the stock market. This couldn’t be further from the truth and unfortunately; my eyes were only opened to this recently. When I got into real estate a few years ago, I wanted to stay balanced between the stock market and real estate in order to stay diversified. I still do this to an extent, but what I love about real estate is that I am the one adding the value and forcing appreciation. I can use my knowledge and experience to increase yields, instead of counting on the market to go up or down. I can still diversify inside of real estate to ensure I am not heavily invested in one sector or another but I am the one who is picking the investment. In stocks, I strictly invest my money in Vanguard index funds. I don’t know the first thing about day trading and stock picking and frankly, I feel that it is complete speculation. But, I do know a lot about investing in general and how to use my money to make money.

Before I start speaking to specifics, I want to put the disclaimer out there that I am not a certified financial planner, I don’t work for or get any commission from a SDIRA company, I am not a CPA, and lastly I am not a lawyer. I am just a guy passing on the information that I have learned over the years I have been investing in real estate and want to talk about the great returns I have seen inside of my SDIRA. I spoke earlier about diversifying inside of real estate, and one of the main ways that I do that is with my IRA. I lend the money inside of my Roth IRA to another house flipper at a set interest rate. He uses my money to leverage the returns he gets on his renovation projects and I get steady, set returns inside of my retirement account. The returns don’t change based on the market, but it is a set interest rate that I receive on the money I have invested. Think of it like a high yield CD.

By now, some of you probably have a ton of questions about this new idea of investing the money inside of your IRA or 401k. Once my eyes were open to this product, I knew I had to figure out how to use it. So, let me describe how I went through the process of moving my money from a standard IRA inside of Vanguard to a self directed IRA with a company called uDirect ( I did A LOT of research and there were a handful of companies that I narrowed it down to. There are a lot of great SDIRA companies out there and I suggest you do your research to see which one fits your requirements best.

  1. I decided on the custodian (uDirect) in which I will use to invest my IRA money
  2. I created an account with uDirect in order to have somewhere my money would be transferred to.
  3. Once the account was open, I put in a transfer order to direct the money from Vanguard to uDirect.
  4. Once my SDIRA was funded (approx. 2-3 weeks), I could pick the investment I wanted to apply the funds to. When the funds are not being used, they are in a FDIC insured bank account getting 0.5% interest.

At this point, the money is in my SDIRA and then it is up to me to find the investment I want to direct my money to. This can be a multitude of things and it doesn’t even have to be real estate. But that is why I transferred it so why would I buy up gold or silver? Some great options for this investment are rental houses, mortgages, promissory notes (loan), apartment complexes, etc… Basically any long term, PASSIVE investment works here. There are quite a few gotchas that the IRS brings into play and some of those are investing with disqualified persons (father, mother, husband, wife, son, daughter) and doing work on your own properties (this would be an undocumented contribution to your IRA, sweat equity). My original plan was to build up my SDIRA to the point I could flip houses inside of it and not pay any taxes. Well, the IRS gets you there too with a tax called Unrelated Business Income Tax (UBIT). This tax is set up to stop people from running a business inside of their IRAs. Imagine if Walmart were created inside of someone’s Roth IRA, they would absolutely crush the competition (more) due to the tax benefits they would receive on all the profits each year. So, the IRS levies a tax on profits made inside of a SDIRA that is technically running a business, such as flipping. The idea of the IRA is to create passive money in the form of interest, dividends, royalties, rents, etc… A lot of things can get you here so be careful and do your research. This is where the custodian of the account comes in to underwrite your plan before they allow the funds to be disbursed.

So, now that you found the vessel in which to invest, it’s time to run it by the custodian and get that rental house, loan, or mortgage funded. The flipper I know has had my money for months, I don’t think about it, I don’t get any phone calls about what is going wrong, it’s just out there working for me while I am sitting here writing this. What can be better? At the end of the project, it gets sent back to me with interest and I look for the next project to invest in or he pitches me his next one.

Even with a 1,000+ word blog post I probably only scratched the surface of what can be done inside of a SDIRA and how to do it. But, the whole point was to open some of your eyes about what can be done in the world of real estate and how you can really accelerate your retirement accounts above and beyond the stock market returns.

Does anyone else invest in a SDIRA? If so, please comment below and tell us what company you use and what it’s currently invested in. If I know you well I am going to be upset that you didn’t tell me about this investing strategy years ago!

If you are interested in getting started with a SDIRA, I would be happy to give you some more details about how to get started and talk through some possible options for investing.

Leave a comment




  1. Great post again, Bill.
    After you set up the account at with the SDIRA firm, what if you don’t have an investor lined up right away? Is there a way for real estate businesses to pitch you based on available funds? How else do you find people to invest in besides word of mouth?

    1. Fernando, thanks for reading and the nice words. Good question about the investment and where to find investors. I would suggest you start thinking about how you would want to deploy your IRA money first. To do that, start with the returns you want to see and the amount of time you want to spend on getting those returns. For example, a rental house will be more work than a loan to another investor but the returns could be higher if you pick the right investment. There are a lot of reputable turn key companies that provide rental properties already tenanted and ready to go which will decrease the workload. However, you will need to have reserves in the account in case something big goes wrong. Real estate businesses are limited by the SEC to pitching their products blindly to accredited investors only. But if you want to invest with a local investor, just go to your local real estate investment club, stand up and say “I have IRA money I want to lend”. You will have a crowd around you by the end of the meeting. Otherwise, find an investor that you trust and see what they can do for you. Give me a call or email and we can discuss what I can do for you if you’re interested in getting started. I’d be happy to help you out any way I can, especially finding and vetting a local real estate investor if you want to keep your money working in your local area.

      Sorry for the lengthy response, I think it deserved an in-depth answer.

  2. Blackjack,

    Great Blog topic. I need advice and help with transferring my TSP into a SDIRA. I would like to start the process next week. Thanks in Advance.


    1. No problem, I will shoot you an email with a good contact at the company I use for my SDIRA. They can walk you through the process of transferring your TSP over to a SDIRA, it’s pretty easy. Since you are retired, you can just roll it over into a SDIRA account as opposed to those who are still active duty. But, the one question I would have is did you make any contributions to your traditional TSP with tax free (overseas) money? If you’re not sure, you can see that on your TSP balance sheet at the bottom under “Tax exempt balance = xxx.” If you have a large tax free balance, you may want to keep that money in the TSP so you don’t have to pay tax on it.

  3. Awesome… Thanks Bill…. WILCO


  4. Good post, going to have to dig into this one more for sure!!

    1. Thanks for reading Brandon, there is some great value to using your self directed IRA especially to buy rental properties. Just be careful as there are a lot of gotchas that I didn’t mention in the post. Let me know if you have any questions as you get further along in the process or want to know more.