Client Paul Puts Fears Aside, Grows Self-Directed IRA by Nearly 30 Percent

By Heather Taylor0 Comments

Any time Michigan resident Paul has pondered potential investment opportunities in the past few years, it was always with some reservation due to the unpredictable economic conditions.

“I was expecting the financial crash to come; I was kind of scared,” he says.

Paul, a former financial analyst at Ford Motor Co., was fairly familiar with various investment strategies. He led a real estate investment club at Ford, which was also where he learned about using self-directed IRAs as a funding source for real estate and other alternative investments.

Now a real estate agent, Paul was intrigued at the idea of owning real estate in his IRA. He converted his traditional IRA into an Equity Trust Roth IRA because a Roth account is set up to allow his savings to grow tax-free. (Read more about Roth IRAs.)

He researched potential investment types and decided that real estate is a relatively stable place to put his retirement funds.

“It’s a tangible property, it’s always going to have some value, and you have some kind of control over the property to some extent,” Paul says. “It makes you feel better about the actual collateral (rather than investing in the stock market).”

He finally pulled the trigger in January 2012, buying a 20-year-old single family home in nearby Wayne for $32,000. Paul currently leases the property to a Section 8 tenant for $850 per month in rent, which is paid jointly by the government and the tenant.

After paying the property taxes, he is left with nearly 26 percent in profits annually, which grows in his IRA tax-free. He received 31 percent of his investment back in just the first year.

Sharing the “secret of the industry”

For the most part, owning a property and being a landlord has been “smooth sailing” for Paul, though he acknowledges it takes some work on the front end to size up potential properties and make sure it’s a solid investment.

Now that he’s dug into one self-directed investment and it’s been cash-flowing for a year, he’s anxious to explore more self-directed deals – not just real estate.

“I have many plans to do many more transactions – everything from tax liens to organizing a company with an interest in a multilevel marketing company,” he says.

He also intends to continue to spread the word about this investment funding source, with which few of his real estate industry peers and financially savvy friends are familiar.

“I’m shocked how few people know about self-directed IRAs,” he says.

His own accountant was one of the ones in the dark about the strategy before Paul told him about it.

“He described it as a secret of the industry,” Paul said about his accountant. “I got to thinking…it is kind of like that. I don’t know why, but it is.”