The SMARTEST investment I’ve ever made has been the education investment into myself.  That’s not the topic of this article. 

The 2nd smartest investment I’ve made has been using a ROTH self-directed IRA to get into the lending business.  It was acutally a big mistake…at the time, I thought I was going to end up loosing my hind end on the deal.  Here’s what happened. 

I had a little bit of money I’d rolled over from a 401K plan.  By the way, if you are leaving your job in which you have a 401K, this is a very smart move as long as you don’t do something stupid with the money.  We decided to go ahead and pay the income tax on the money ONE TIME when we rolled it.  When you do so, it converts to a ROTH account.  That money can never be taxed again when you draw it out later in life. 

IRS does have specific rules regarding how you can use your self-directed IRA.  For example, you can’t loan yourself money to do a deal (or your company, etc.).  You don’t ever want to do something that might disqualify your account by breaking the rules because later on down the line you could be hit with a tax on the whole account.  And that would just ruin your whole day.   

You can buy real estate with that money.  It’s not really a great idea to buy rental property with this type of account because you don’t get any of the great tax benefits you do with a regular rental property.  

You can buy a property and flip it with that money. And That’s what we decided to do with the $30,000 or so we had in this account.  

So we found a property that we decided would make a good "retail" flip.  We bought the property, got it ready, and listed it.  And waited for it to sell.  And waited some more.  A year later, we were still waiting.   

We decided we needed to change our game plan.  We decided to sell the property for $50,000 on owner financing.  What that did for us was allowed us to capture the $20,000 increase in price.  An on top of that, we charged 10% interest on the loan. 

It didn’t take long to find someone willing to put $5,000 down on the house since we were willing to carry the financing.  

That was several years ago.  The money just keeps coming in like clockwork.  We loan out the money that comes back into the account to other investors for there deals.  In doing so, the interest accumulates interest.  

We wouldn’t even need to add more money to this account for it grow to several hundred thousand dollars within 20 years.  

However, we’ll keep contributing to it so that it reaches at least the million dollar mark within that timeframe.  

Do you have a retirement fund like this in which you’d like to earn a great rate of return?  If you are in Oklahoma, contact me about that and I may be able to put you onto the right track with that at scott at financiallyfreelandlord dot com.