Converting a traditional IRA into a “self directed” IRA for better returns!

Just over a year ago, a client approached me to work with him to acquire additional investment homes.  He had already purchased several homes that we were managing.  He had heard about an option that would allow him to use his assets in his Individual Retirement Account (IRA) to purchase real estate.  At his direction we started investigating options for him to transfer his assets from a traditional IRA to a “self directed” IRA, allowing the purchase of real estate.  First of all, we researched if IRS would allow such a program – and yes they do.  It turns out that it is a relatively simple process.  The more I read and researched the more I realized that a self directed IRA might be a great opportunity for me as well – like most folks I had a traditional IRA.

Fast forward 16 months, I am now managing five more homes for this client.  All of these new homes are a minimum of 1,550 square feet, two are more than 2,000 square feet; located in nice neighborhoods.  Besides being able to purchase investment properties, I found a bank that will finance investment homes owned by an IRA – IRS allows this as well.  Leverage has always been a key component of owning real estate, it works just as well in a self directed IRA.  I recently calculated that his self directed IRA has appreciated by 29% – a return of 21.75% annually.  In addition, these homes generated a positive cash flow even though his strategy was to finance for 15 years.

Later this week I will further explain and discuss my most recent experience with a self directed IRA…