Self-Directed Investing

The commercial real estate landscape offers a range of intriguing and potentially profitable investment opportunities. No matter how appealing those opportunities might be, however, many investors do not take advantage. Concerns about possible tax implications and the inability or unwillingness to commit a sizable chunk of ready cash to an investment instrument for a period of several years means that a significant number of potential investors feel like they do not have a viable way to participate in that marketplace.

That might be starting to change, however. A relatively obscure investment option that many investors may not even be aware of is starting to gain more traction: the self-directed IRA (SDIRA) investment. As awareness grows, SDIRA activity appears to be picking up.

What is SDIRA investing? How does it work? What are the potential advantages of investing with an SDIRA, and how can an investor determine if that approach is right for them? What follows is an overview of this underutilized investment tool and an introduction to the basics of what investors need to know to begin exploring their SDIRA options.


Simply put, an SDIRA makes it possible for investors to invest in alternative investments (most commonly real estate) using money from their retirement accounts. The vast majority of brokerage houses are structured in a way that focuses on products they know and sell. Additionally, because wealth advisors’ compensation is based on their AUM, they are disincentivized to recommend strategies that result in money leaving their management. Consequently, they will not suggest to IRA account holders that they invest in alternative assets like real estate. To utilize an SDIRA, individual investors will need to work with a custodian who is able to handle self-directed IRA accounts. Once your IRA funds have been moved to that custodian, the investor can instruct the custodian to buy the real estate on behalf of their IRA. Generally speaking, funds from any IRA (Traditional, Roth, SEP, or Simple) can be utilized in this manner, as can many other types of qualified retirement accounts, such as 401ks from previous employers. 

The primary obstacles to SDIRA investing are not logistics, but awareness. Many investors are simply not aware of the opportunity an SDIRA affords: more control and flexibility over the nature of the investments in their retirement account(s).

Not-so-fringe benefits

The biggest advantage of SDIRA investing when compared to a traditional IRA or 401k is right there in the name: it is self-directed. Because an SDIRA makes it possible for individuals to invest in alternative assets like real estate, it allows them to diversify their portfolio and potentially realize more substantive gains.

SDIRA investors often cite the versatility that this investment approach affords them, as well as the gratifying feeling of having more input and control over how and where their hard-earned retirement funds are invested. Another underappreciated benefit of investing through an SDIRA is that SDIRA custodians are often able to provide investors with more one-on-one counseling and regular communications that tends to lead to more informed investment decision-making. That process is understandably appealing to those for whom the typical set-it-and-forget-it more hands-off IRA account management strategy feels impersonal.

Additionally, there are potential tax benefits that come with SDIRA investing. With investments made through an SDIRA the cash flow of any returns goes back to your IRA and is generally not subject to capital gains. In contrast, cutting a check for the same investment out of a checking or savings account would create a very different set of tax obligations. Because the exact nature of any tax benefits or penalties depends on investor- and investment-specific factors, it is always important to discuss those tax issues with a trusted tax advisor who has specific experience in the SDIRA space.

Growing numbers of investors

Which investors are most likely to utilize—and benefit from—SDIRA investing? The reality is that almost anyone with money tied up in a 401k or other retirement account can, in most (but not all) circumstances transfer an account from a previous employer into an SDIRA custodian account. Currently, most SDIRAs are used by savvy investors who already have a solid understanding of alternative investments like real estate or privately held companies and are looking to diversify in a tax-advantaged account. But as awareness continues to grow, it would not be surprising to see the numbers of SDIRA investors continue to grow. For those that meet the accredited investor requirements for a prospective investment and have a qualifying IRA account, the opportunities are there.

Getting started

Like any other type of investment, there is no one-size-fits-all approach when it comes to SDIRA investing. Everyone’s situation is unique. The nature of a specific retirement account can impact not only the logistics of whether it is eligible to be used for an SDIRA investment, but also what the potential tax implications might be. Variable reporting requirements and procedural differences can further complicate the picture.

Which is why the first step for any investor interested in learning more about SDIRA opportunities should be to contact a reputable custodian who specializes in SDIRAs. The right partner will be able to answer your questions with clarity and specificity. Some might even have existing relationships with specific investment funds that can further sweeten a prospective deal by waiving fees and streamlining the investment process. While those fees are generally modest—especially when weighed against the prospect of potentially more substantive returns—they do exist and should be accounted for. For most prospective SDIRA investors, the more they learn about SDIRAs, the more the allure of the diverse and potentially lucrative alternative investments available to them through this process makes sense. For a growing numbers of investors, SDIRAs present an exciting and enticing new opportunity to make their money work for them.