Investing with IRA Money: What is an SDIRA and How Do I Use It for Investing in Real Estate?


When thinking about purchasing property or getting started investing in real estate many people might get stopped by the thought they don’t have enough money in your personal savings to “get in”.  One “hidden” source of capital that you may not even realize you have is an IRA or a 401k from a past employer.

Did you know you could use your IRA money to invest in Real Estate?  We had no idea about this little gem until we got started in this industry and that’s why we want to share this knowledge with you.  If you had a 401k account with a former employer or currently have any type of IRA, you are probably eligible to roll your assets into a Self-Directed IRA “SDIRA”. An SDIRA is an individual retirement account that gives you complete control over your investment choices, allowing you to invest in alternative asset classes like real estate or to make private loans, generating tax-deferred income or gains.  We believe there are a number of advantages to setting up an SDIRA and very few drawbacks, which we break down for you below.

Advantages of SDIRA:

  • Tax – Free or Tax Deferred Investing – With a traditional IRA investment you will not have to pay taxes on contributions or earnings until you start taking distribution in retirement or With a Roth IRA – your earnings appreciate tax-free.
  • Compounding Interest – allows you to reinvest the interest you earned in your SDIRA, tax-free and thus continue earning even more money and repeating the process.  (see more below about how this works in reference to Einstein’s “Rule of 72”).
  • Diversification – Expand and diversify your investment opportunities beyond just the stock market in an asset class that you know and understand and better protect your funds.
  • No Restrictions –  From the IRS related to the type of real estate that may be held.
  • Creditor Protection – You have strong creditor protection as most states shield an ira from creditors outside bankruptcy.
  • Freedom to Choose  – You can be a private money lender with your IRA or invest in real estate directly – the return on your money is pre-established, you get to choose the lending terms and deal that you are comfortable with.
  • Be Your Own “Bank” – an SDIRA gives you the ability to loan your IRA money to non-disqualified persons (people other than your spouse, parents, or kids), while keeping all tax benefits associated with IRA accounts. So, you can lend to friends, siblings, and colleagues (with some restrictions for business partners).

Disadvantages of an SDIRA:

  • The “Prohibited Transaction Rules”  – Restrict you from loaning money to ‘lineal’ relatives and business partners. These include your spouse, children, parents or grandparents, etc. – they are all disqualified and cannot participate in your deals or lend you money.
  • Your SDIRA Cannot Directly Benefit You Today – i.e you cannot buy property that you intend to live in or use as a vacation home. However, at 59.5 years of age, it does!
  • Expenses – An SDIRA account is slightly more expensive than a traditional IRA account.
  • Delayed access – Like your normal IRA or 401K, you cannot access the money for day to day living until you reach 59.5 years of age. If you do, there is a sizable tax penalty.

As you can see, we believe that the benefits of an SDIRA far outweigh the few drawbacks.  There are two options for opening an SDIRA – you can place the money through a custodian company that specializes in SDIRAs or you can open and place the funds via a checkbook IRA account.  Most traditional brokerages do not offer SDIRAs, you will have to direct the funds from your current account to an IRA custodian that specializes in self-directed accounts. Which account is right for you depends on your personal preference and we encourage you to do your research before deciding which is the best option.

Einstein’s Rule of 72 – Grow Your Capital Like A Genius

If you want to really throw some gas on the flames and make your retirement in the tropics a sure thing, invest your money using a time-tested law discovered by the late and great Albert Einstein:

              The Simple Formula:   72/Interest Rate = # of years to double your investment

The Rule of 72, and compounding interest works like this – Take 72 / 10% (an example interest rate) = 7.2 years: the time it will take for your money to double, so if you invest $100,000 @10% interest, after 1 year you get back $110,000, then immediately reinvest the $110,000 back into the next deal @10% – for another year, and continue the process, 7.2 years from now you’ll have $200,000!

Taking this a step further – Say at 30 years old you have $100,000 in an IRA retirement account and invest @10% interest rate, with compounding annual interest, in 7 years you’ll have $200k, in 14 years you’ll have $400k, in 21 years you’ll have $800k, in 28 years you’ll have $1.6million and in 35 years at the retirement age of 65 you would have $3.2 million!!!! All without ever paying anything more into your IRA.

Without doing a single hour of more work in your day job, you can invest your money and grow your retirement savings significantly. Thanks Einstein!

Ok, so what do I do now if I want to learn more, or set up an SDIRA?

The first step is to set up your account up with an SD IRA administrator, which there are many of to choose from. If you are interested in learning more about this option or how you could invest some of your IRA money with Akras Capital, please feel free to reach out using the form below, and we are happy to discuss more in detail and get you started.


Connect With Our Team

If you are interested in learning more about how to set up an SDIRA, or unlock other hidden sources of capital so that you can invest in real estate, reach out to our team at Akras Capital and we’ll walk through it with you!



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