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A truly self directed IRA is one where the IRA owner does not have to filter every decision through a self directed IRA custodian. The vast majority of IRAs are not self-directed. Most banks and other, major financial institutions only offer the traditional IRA custodian relationship. This means that your investment actions are limited by their plan documents more than by the actual IRA laws.

A self-directed IRA is governed by a plan document that seeks to comply with the letter of the applicable federal laws while retaining as much freedom as possible. One plan for expanding that freedom is the formation of an LLC within an IRA. This arrangement gives the IRA owner the ability to write checks for investments rather than having to ask the IRA custodian to write checks–and then paying the required fees.

Such self-direction can be a powerful tool in the hands of an experienced investor. It can also be a powerful tool for self-destruction in the hands of an inexperienced, “whim” investor. To get the most from a self-directed IRA, an investor has to be willing to perform due diligence on every investment opportunity. You may have a good advisor who can help you avoid costly mistakes but they will not take the time to do your research for you.

When Is the Time to Open a Self-Directed IRA?

Any time is a good time to open a self-directed IRA, but you should not start wheeling and dealing with retirement until you have learned how to consistently make money with your money. Starting a relationship with an IRA advisor is a good idea because they can help point you in the right direction. You cannot expect them to do your work for you, however, so you have to want to study and learn the ins and outs of investing in alternative investments.

For more information on how to invest in real estate with a Self Directed IRA or CALL Now 1-877-339-4559 toll free the IRA LLC Partner.

It’s no secret…  Investing your self directed IRA  in real estate can be a great diversifying asset for your IRA portfolio. Returns from your IRA real estate investments can help your IRA and retirement funds to weather downturns in paper assets, e.g. mutual funds and the like. But, if you choose to invest your self directed IRA funds in real estate, should you invest in commercial or residential real estate?

Arguments can be made for each. However, the smart way to determine which sector of the real estate market to invest in depends on several factors. As any savvy real estate investor will tell you, it all depends on your end goal.

Things to Consider When Deciding Whether to Invest in Commercial or Residential Real Estate with a Self Directed IRA

Location: Real estate is all about location, location, location. Most think in terms of residential real estate when referring to location. But, it is just as important in commercial real estate as well. For example, if you’re thinking of investing in a strip mall, location will be important because merchants must have sufficient traffic to be able to make sales.

Economy: Commercial real estate is more closely tied to what a given economy is doing that residential real estate is. If you’re going to invest your self directed IRA funds into commercial real estate, assess the local economy of the targeted region with a long-range view. For example, what are its prospects for recovery/downturn in the next three or five years. Then, you can make your investment accordingly.

Length of Investment: Piggybacking on the last point just above, using your self directed IRA funds to invest in real estate should be done with an eye toward the future. The big payoff in real estate is often received when you buy and hold. So, consider how long you’re willing to stick with a certain investment – and what is the likely payoff over that time.

The bottom line is, using your self directed IRA to invest in real estate is a smart move that can increase your retirement nest egg exponentially. However, as with any investment, it takes research and patience.