Using Leverage In Your Self-Directed IRA

I have been investing in real estate for about four years. I saw an opportunity back in 2010 and 2011 when it looked like the Real Estate market had hit rock bottom. Just as Warren Buffett says “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.  I saw this a great opportunity.

The stock markets at recovered considerably from it’s collapse and had started to regain some lost ground. I figured it was a good time to cash in my stock market investments – mostly Index mutual funds – and put that money to work in a Self-Directed IRA.

I had heard a little bit about Self-Directed IRA’s and how you could invest your IRA in real estate and alternative investments with your retirement savings. But it took a little bit of research to find out how it all worked.

Since 2011, my new Self-Directed IRA has been humming along at a nice consistent 15 to 20% annualized rate of return. Compared to my previous stock market experience, with all the ups and downs of the market, the returns I’m getting now seem vastly superior and much safer. More importantly, I believe these returns will continue long after the market suffers it’s the next collapse.

I saw a chart the other day showing that self-directed IRA’s made up only 15% of the universe of IRAs. This shows that most people still do not know they exist or don’t care to manage their investments themselves.

Now, of that small percentage of people saving for retirement through IRAs, the percentage that know that they can get more money into their IRAs than the $5,500 limit is much, much smaller.

I know, you’re thinking, Tom, you’re crazy, there are only two ways to get money into an IRA. First, you can contribute the maximum allowed per year which is currently $5,500. Or second you can get more money into an IRA by rolling over a 401(k) from an employer’s retirement plan.

That’s true. But you can also use leverage inside of an IRA.  Leverage helps you make your money work twice as hard.  So if you have $100,000 in your IRA and you get a loan for another $100,000, you now have twice as much money working for you.  Twice the capital gains and twice the income.  Using leverage adds a little bit of complexity to your income tax return because some of the income will be taxable so you should definitely consult with a tax professional so that you know how to handle the taxable portion of the income.

There only a couple of lenders that I know about that will loan money inside of an IRA. I’m always happy to share what I know, so please feel free to call if you want to discuss and learn more.

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