Self Directed IRA's and Real Estate Investing Basics

Daily headlines in the Wall Street Journal discuss the unprecedented damage done to retirement funds due to the economic crisis and corporate scandals. With social security evaporating rapidly, baby boomers retiring, and everyone living longer, investors are desperate for an investing alternative that can offer safe, strong return.

Many investors are not aware of a long-standing Internal Revenue Service ruling that allows investors to put their IRA funds and even some 401(k) plans into what's called a "self-directed IRA" or SDIRA. This little known retirement tool is believed to be the future of retirement investing since investors actually have direct control over what they are investing in.

SDIRA's can be used in a wide variety of nontraditional investment. Real estate investing is the most widely used investment vehicle for SDIRA investors.

Here's how it works...

1. Open self-directed IRA account with a specialized custodian
2. Transfer current IRA funds to the new self-directed account
3. Direct custodian to invest the funds into the specified asset. After an administrative review to determine if the asset can be administered, the custodian forwards the funds to purchase the asset, and the asset comes into the ownership of the individual's IRA account.

The IRS code does not specify which types are permitted; however, typically you can purchase investment property such as

- single or multifamily dwellings,
- apartments,
- commercial buildings,
- raw land,
- vacation property,
- condominiums,
- mobile homes

You can also lend money against these types of property and become a private lender.

You cannot buy a property, or invest in a secured loan, that involves yourself, a son, daughter, parent, or other disqualified party -- such as a fiduciary or your sole proprietorship.

Teaming up with the right "custodian" is critically important, especially as SDIRA's become more mainstream. Make sure your custodian has a proven track record, reasonable transaction fees, and is as flexible as the law allows in letting you direct your money toward the investment of your choice.

Many investors are looking for simple solutions where they can leverage other peoples' knowledge when making investments.