5 Investment Strategies for your Self Directed IRA

What is a self directed IRA? A self directed IRA is only slightly different from a regular IRA. What makes it unique are the number of investment options available. While a traditional IRA custodian will only allow you to invest in stocks, mutual funds, bonds, and CDs, self directed IRA services will allow you to invest in far more.


  1. Self directed IRA Real Estate
  2. Self directed IRA Precious Metals
  3. Self directed IRA Currency
  4. Self directed IRA Tax Lien Certificates
  5. Self directed IRA Promissory Notes

Let’s take a look at some of the ways you can invest your retirement tax-advantaged dollars using a self-directed IRA.

1. Self Directed IRA Real Estate

Buying physical property can play a significant role in your portfolio. Real estate has become a popular choice because there are many ways to start. Using a self directed Roth IRA, for example, will allow you to buy investment real estate and hold it in your retirement account. The best self directed IRA for real estate will depend on the type of real estate you choose.

Basic Real Estate Investment

Basic real estate investment is buying a property and renting it out to a tenant. It is one of the most popular choices when it comes to self directed IRA for real estate. As the property owner, you remain responsible for the mortgage, property maintenance, and taxes.

Real Estate Trading

Real estate trading, more commonly referred to as flipping, is like day trading compared to using a buy-and-hold investment. Some flippers simply sell the property for more than they paid, others renovate the property to increase its value and turn a larger profit.

Real Estate Investment Group

Real estate investment groups are rather like mutual funds on rental properties. It’s a way to own property without the responsibilities of ownership. A company will buy an apartment complex and then allow individual investors to buy one or more units. The company will manage all the properties for a percentage of the month’s rent.

Real Estate Limited Partnership

Real estate limited partnerships (RELP) are similar to real estate investment groups. The focus is less on making money from monthly rentals and more on selling the entire property at a significant profit and distributing the sizable earnings.

Real Estate Investment Trust

A real estate investment trust (REIT) is a trust that uses investor’s fund to buy, run, and sell an income-generating property. Like stocks, REIT is purchased and sold on the major financial exchanges, with 90 percent of taxable profits being used to pay dividends to the shareholders.

Real Estate Mutual Funds

Real Estate mutual funds invest in real estate operations and REITs. They allow small investors to buy real estate for a small amount of capital. This is a convenient way for investors to buy REIT stocks without making individual purchases.

Incidentally, when it comes to your real estate investment decisions, your estate plans may also include what you plan to leave for your lineal descendant. So, when you invest to build your assets, don’t just think in term of immediate income, but also think long-term about the estate you will leave behind.

2. Self Directed IRA Precious Metals

Precious metals, like gold, silver, platinum, are either rare or have high economic value. Individual investors can purchase precious metals in a variety of ways: as a physical asset, as future contracts, as mutual funds, or as exchange-traded funds (ETFs). Investing in precious metals is a good way to diversify a portfolio. Additionally, precious metals offer a hedge against financial uncertainty or rising inflation.

Here are some ways to invest in precious metals:

  • Holding bullion (precious metal in the form of coins or bars)
  • Trading in the commodities market
  • Buying shares in a gold mining company
  • Purchasing mutual funds to indirectly invest in mining companies across the world
  • Acquiring exchange-traded funds (ETFs) to benefit from low transaction costs and daily liquidity

3. Self Directed IRA Currency

The Foreign Exchange (FOREX), the largest financial market in the world, exchanges trillions of dollars every day. Millions of traders ensure that this is one of the most liquid markets.

Here are the most traded currencies in the world for long-term currency transactions:

  • The United States dollar (USD) is the most frequently traded currency in the world. It is usually paired with another major currency when trading. Although not the world’s reserve currency, every central bank holds this currency.
  • The Euro is the next most heavily traded currencies and considered the second biggest reserve currency in the world. Introduced in 1999, it is used within the eurozone.
  • The Japanese yen is the most traded currency in Asia, backed up by Japan’s reputation as one of Asia’s premier manufacturers and exporters. The stability of the yen is often used as a way to gauge the growth of the Pan-Pacific region.
  • The Great British pound ranks fourth on the list. Although the UK is still part of the European Union, which it will officially exit March 2019, it still uses the pound rather than the euro as its currency. This is a matter of pride rather than for any economic reason.
  • The Canadian dollar, informally called the “loonie,” moves in harmony with the futures market. It’s the most popular commodity currency when it comes to minerals, precious metals, and crude oil.
  • The Swiss franc, like the country of Switzerland, is valued for its neutrality. It’s considered a safe currency in the foreign exchange market. It often moves in the opposite way to the US Treasury yields, the Australian dollar, and the Canadian dollar. The currency is viewed as a way to reduce volatility in the forex markets.

4. Self Directed IRA Tax Lien Certificates

A tax lien is a lien placed on a property when a landowner fails to pay taxes due. It’s a legal claim placed on the property. Until the lien is paid, the property cannot be refinanced or sold. Since the local government wants to recoup money owed on a property, they put the tax lien up for auction.

Before you purchase a tax lien, decide on the type of property for your investment. Do you want a lien on a residential, commercial, or undeveloped property? Your city or county can tell you when and where the next auction will be, as well as apprise you about all the rules of the sale.

After you purchase a tax lien certificate, you must immediately pay the full amount of the lien to the municipality. The property owner is now responsible for paying you back for the whole lien with interest, which can range from five percent to thirty-six percent. In the rare event that the owner completely fails to pay you back, then the property will go into foreclosure. Usually, the first and second mortgage lender will receive the bulk of the sale and you will only be paid as the lien holder if there are surplus funds.

5. Self Directed IRA Promissory Notes

A promissory note is a written promise by the issuer to the note’s payee. It specifies a specific amount that will be paid at a future date. This financial instrument has all the terms associated with a debt instrument.

To comply with self directed IRA rules, you should limit yourself to the following four types of promissory notes: notes secured by real property, notes secured by non-real-estate, unsecured notes, and note participation agreements.

Although each is slightly different, the repayment terms will be clearly outlined on the promissory notes, such as the principle, interest amortized over time, and so on. In the unlikely event that the lender cannot pay the note, you are entitled to the underlying collateral.

How to Set Up a Self Directed IRA

Before you decide on the best IRA for your needs, it’s important to understand all of your options. Develop a basic understanding of an IRA, the various IRA types, and how to set up an IRA, before making a final decision.

So start with the basics, then as your knowledge and experience grows you can begin taking advantage of the alternative investments available through self directed IRA services. Next, decide on whether you prefer the structure of a traditional IRA, where you don’t pay taxes when you put in your money– or a Roth IRA, where you pay taxes when you make an early withdrawal of your funds.

For example, if you decide to get a self directed Roth IRA, do some research on the best place to open a Roth IRA. Once you’ve established a self directed LLC, then you need to understand self directed IRA fees. Also, be sure to pay attention to any industry-specific regulations. If you’re investing in real estate, it’s important to be aware of the self directed IRA real estate rules.

Also, get a clear idea about what constitutes a prohibited transaction. Usually, the best self directed IRA providers will give you plenty of guidance on what you can or cannot do with real estate, precious metals, mutual funds, promissory notes, tax liens, retirement savings, and other alternative assets. If you are unsure of an investment, check with the custodian. You don’t want to violate any tax codes because you are unsure about the limits of your checkbook control.

Finally, choose all your investments carefully. If, for example, you get a non-recourse loan for your trust company to boost your retirement funds, then be sure that you work with investment advisors to avoid unnecessary losses.

Understand Your Self Directed IRA Investments

Setting up a self directed IRA is a good idea for your 2019 financial goals. Understanding what constitutes the best self directed IRA is the first step towards making your decision. There are numerous investment opportunities available when you use a self-directed Roth or traditional IRA for your retirement plan. In addition to investment options such as real estate, precious metals, currency, tax lien certificates, and promissory notes, be aware that there are many more investment opportunities available.

It is important that you gain considerable expertise in each of these investment vehicles. If possible, work with an expert because each form of investment carries some risk of loss if you go about investing in the wrong way. Don’t just jump into self directed real estate IRA because it sounds like a good idea. Carefully research your self directed IRA real investment choice, or partner with someone who has plenty of experience and knows exactly how to turn a profit.