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Top 5 Investments with a Self-Directed IRA

Many investors new to the idea of a self-directed IRA or 401(k) are unfamiliar with the investment options available to them and what works best in a self-directed IRA.  Having worked with thousands of investors over the years, we thought it might be helpful to introduce some of the most popular investment choices.

real estate ira investment

Rental Real Estate

Collecting rents from real property is a fantastic way to grow your retirement savings.  Whether the property is a long term residential rental, commercial space, vacation rental property or even farmland, you have the dual benefits of securing your capital into a real asset and generating positive cash flow.  You may even be so fortunate as to see the property itself appreciate over time, and reap double the reward.

Whether you work with a property management company or handle the properties yourself, this type of investing can be very rewarding.

Trust Deeds & Mortgages

Many investors prefer to be the bank rather than a landlord, and pursue real estate opportunities from the perspective of providing financing.  There are many approaches that have proven successful for our clients, including short term lending to investors flipping homes (often referred to as hard money), new construction lending, and longer term mortgages for investment or commercial properties.

As with owning real estate, your IRA’s investment principal is secured by the deed to the property and you can foreclose on the borrower in the event of a default.

Depending on the type of lending, you can expect generous return on investment for such a secure investment.  Longer term 5-7 year mortgages on another investor’s rental property or a commercial unit might produce in the 7-9% range.  Shorter term rehab or construction financing can often be done at 12-15% interest, depending on the level of risk involved and loan to value ratio.

Tax Liens & Deeds

Tax lien and tax deed investing are exciting ways to put smaller amounts of capital to work in potentially high yield investments.  When a property owner is behind on their property taxes, the county will auction off a lien or deed secured by the property in order to collect the revenue they need to operate public services.  Investors can purchase these instruments and will either receive a premium rate of return in the range of 12-18% when the taxpayer finally pays off the tax debt, or have the potential to foreclose on the property.  In many cases, your investment is the amount of back taxes owed.  The type of tax instruments available vary from state to state, and this is an area where you will definitely want to be well educated both on the type of tax lien/deed available and the local/state laws governing how such auctions are conducted.

Private Lending

Look around your personal and business network.  Do you know a business owner wanting to expand or someone planning to start a new business?  Is a friend or associate experiencing a short term financial pinch due to layoff, divorce or illness?  So long as you avoid transacting directly or indirectly with disqualified parties to your IRA, your plan can lend to business or individual on a secured or unsecured basis.  So long as you conform to state lending laws, this is an alternative that can allow you to put your money to work in your own community.

Our primary advice in this area is to invest with your mathematical brain, not with your heart.  Always be sure you have solid contracts and record the loan at the state or county level to secure your rights.  Because you have a fiduciary obligation to protect the interests of your IRA, you cannot simply forgive a debt to a friend without potentially running afoul of the IRS.  If you think there is a chance the financial transaction could potentially go bad and spoil a cherished relationship, you should pass on the opportunity.

Venture Capital

Several of our clients are well networked with entrepreneurs, inventors or other individuals with opportunities to invest in a start up or early stage venture.  Your self-directed IRA or Solo 401(k) can be used to provide start up or growth capital to a business and potentially make significant gains as a result.

This type of investing can be one of the more complex avenues for deploying your retirement savings, however.  Performing diligence on a new venture can be tricky.  Many start up businesses fail to reach their potential due to a variety of reasons, and as investor you need to understand the risks surrounding the particular type of business you are investing in.

When investing in venture capital, one needs to be especially aware of rules surrounding self dealing or dealing with disqualified parties.  If your IRA or 401(k) is investing in a business, you need to personally remain at arm’s length.

Investing in an operating business that is not a C Corporation can have exposure to Unrelated Business Taxable Income (UBTI) on the operating income.  The increase in value of your shares of the business is not subject to this tax, however.  Since the increase in share value is generally the objective of venture capital investments, the exposure to UBTI is most often acceptable, but you will want to be sure you fully understand the implications.


There are many other ways you can employ a self-directed IRA or Solo 401(k) to participate in the opportunities that surround you and diversify your retirement investing portfolio.  When you work with Safeguard Advisors, you can rest assured that you have a team of experts on your side who are familiar with the rules surrounding such investments, and that we can help you maximize your returns while staying within the IRS guidelines.

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