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Five Self-Directed IRA Choices that Don’t Require a Large Bankroll

August 19, 2013

Interested in investing using your IRA, but think you don’t have enough to invest?  Below are a few options to use a small balance self-directed IRA to invest.

* Lend your IRA – This can be a 90 day loan secured by automobile paper, a second mortgage on real property, or an unsecured note. Keep in mind, the borrower and the IRA holder determine the rates and terms of the loan – and all payments are made directly to your plan administrator for the benefit of the IRA.

* Buy an Option – The IRA can purchase an option to buy a parcel of real estate before a prescribed date for a fixed purchase price. Later, if the terms of the option permit and the value of the property is greater than the optioned purchase price – the option can be resold – and all the proceeds and profits are returned to the IRA, without tax ramifications.

* Tax Liens – Many clients like to buy tax liens at the county courthouse as they generally provide a higher level of safety than other types of investments. The liens may be removed and the interest paid in as little as ten days, or as long as six months or more. In rare instances, if the property taxes are not paid by the landowner – the tax lien holder (the IRA) may end up with title to the property.

* Partner with others – Partnering is a powerful tool to empower a small IRA holder to get a piece of a larger investment. This can be accomplished within an LLC, private stock, or simply with fractional ownership at titling. For example, an IRA can own an undivided 5% interest in investment property – and would participate in all profits and expenses derived from the property at the 5% proportion.

* Leverage your IRA – Yes, you can indeed have your IRA borrow funds in certain situations. The loan must be non-recourse (secured only by the IRA owned property) and be paid by the IRA, thus you would normally only use this device if your IRA owned revenue producing property. Be aware there also may be additional taxes within your IRA for gains on the leveraged portion of the investment.

All the investment choices can lead to overload – and it is important that you surround yourself with good advisors that can assist you in making your investment decisions. Whether you start with a $10,000 IRA or a $500,000 deferred retirement plan, there are opportunities for everyone

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