Self-Directed IRA
FinancingA Self-Directed IRA (SDIRA) is an individual retirement account that allows you to invest in alternative assets — real estate, private loans, LLC membership interests, precious metals, and more — beyond the standard menu of stocks, bonds, and mutual funds offered by most custodians. The tax treatment is identical to a conventional IRA (traditional or Roth); the difference is what the account can own.
How it works. You open an SDIRA with a specialized custodian that permits alternative assets. The IRA itself — not you personally — buys and holds the investment. All income, expenses, and profits flow through the IRA. For real estate, investors often use a “checkbook IRA” structure: the IRA owns an LLC, and you manage that LLC as its non-compensated manager, writing checks directly from the LLC’s bank account for purchases, repairs, and collecting rent.
SDIRA rules are strict. The IRA owner cannot personally benefit from the asset before retirement, cannot do work on the property themselves (“sweat equity”), and cannot transact with disqualified persons (yourself, your spouse, your lineal ascendants/descendants). Violating these rules can disqualify the entire IRA — a catastrophic tax event.
Example. You have a rollover IRA with $120,000 from a previous employer. Instead of leaving it in an S&P 500 fund, you direct the custodian to buy a $100,000 rental property inside the SDIRA. The property rents for $1,200/month. After taxes, insurance, and maintenance, the IRA nets $600/month — tax-deferred (or tax-free, if Roth) — and the property appreciates inside the retirement wrapper.
SDIRA funds are a powerful equity source in your capital stack and can help you execute no-money-down strategies when paired with creative debt.