Episode #300 — Yes, it’s true:  Rental property investing in your IRA or 401k can make you very, very wealthy.  It’s also true that it’s stressful and time consuming to be a landlord, and financially risky to do so within the confines of the IRS’ strict rules for retirement accounts.  Fortunately for you, I have the answer.  I’m Bryan Ellis.  This is episode #300 of Self-Directed Investor Talk.


Hello, Self-Directed Investor Nation!  Welcome to Episode #300 of the broadcast of record for savvy self-directed investors like you, where in each episode, I help you to find, understand and profit from exceptional alternative investment opportunities.

And yes, this is a special day… episode #300 of this very show… a huge milestone unreached by the vast majority of shows out there.  But then again, this is no ordinary show.  We are the SHOW OF RECORD for self-directed investors all across the fruited plane… thank you for making this milestone possible, my dear listeners.  Our success is attributable only to God’s blessings and your listenership, and I direct my most sincere gratitude to Him and to you.

The topic for episode #300 is a special one to me, an important one, and I’m eager to discuss it with you. Fundamentally, what we’re going to talk about is how you can get the WONDERFUL things about cash flow rental property ownership in your IRA or 401(k) without suffering from the most consistent downsides of that asset class.

So you’re welcomed to join the conversation by calling us toll-free at (833) SDI-TALK, by email me at [email protected], or by visiting today’s show page at SDITalk.com/300.

One thing we can’t deny:  Patient investing in cash flowing real estate tends to be a self-liquidating source of great wealth.  Self-liquidating, of course, refers to the ability of rental property to literally pay for itself by way of rental income.  It’s unique from stocks in that way because although some stocks pay a dividend and therefore generate cash flow, the numbers are incredibly small.  In fact, as of this morning, the average dividend yield of stocks in the S&P 500 is 1.79%.  At that rate, it would take nearly 60 years to earn enough in dividends to pay for your stock.

But real estate doesn’t work the same way.  It’s pretty easy to yield 5 or 6 percent net per year, and frankly pretty common to get into the 8-12% yield range if you know what you’re doing.  So if your rental property is yielding 8%, it means you’re looking at just a bit over 12 years before your investment has totally paid for itself, and yet you still own the investment.  That’s pretty freaking sweet, and is one of the primary reasons why real estate is, far and away, the biggest asset class within the world of self-directed IRA’s.

But let’s not kid ourselves.  The whole rental property “thing” isn’t easy.  It almost always involves finding a property that you can buy cheaply enough such that AFTER you’ve paid whatever it’s going to take to renovate the property so it’s ready to rent, that you’ll still have an asset that can cash flow positively.

That in itself is a tall order, because reasonably-priced real estate is in short supply these days.  To make it even more challenging, it may well be the case that your local area isn’t even an ideal area in which to own rental properties because you’re just never going to get positive cash flow.  My friends in beautiful San Francisco know just what I’m talking about.

But past all of that, then the real fun begins – and I use the word “fun” in the least honest way possible – because then it’s time to find and qualify tenants and conduct move-in inspections and sign leases and become a rent collector and fix the broken toilets and generally respond to the needs of your tenants.

And somehow, some way, you’ve got to do all of that without running afoul of the clear-as-much IRS rules for your IRA or 401k, because the IRS is very unforgiving about dreaded prohibited transactions, and unfortunately, being a do-it-yourself real estate investor in your IRA is, unfortunately, an easy path to committing prohibited transactions.

But hey… I’m not knocking it.  Again, if you get 10 houses under your belt, however you manage to do it, chances are you’re going to have a strong cash-flow situation for decades to come, and that’s a beautiful thing.  Not to mention the fact that if your properties appreciate at only a paltry rate of 3% per year, that’s still enough for you to become very wealthy, because combining a consistent appreciation rate with the self-liquidating nature of real estate means that your effective appreciation rate goes up every single year simply because your amount of cash invested goes down every year.  By the time your cash flows pay off your original investment, the annual appreciation you get represents an INFINITE investment because you no longer have cash invested in an asset that continues to yield profits!

So look, it’s REALLY easy to make the case why real estate is such a fundamentally attractive asset, and combining all of that with the fact that you get to pay ZERO taxes on all of your rents collected, and maybe even ZERO taxes on your capital appreciation if you’re using a Roth account… then my goodness… it’s practically foolish to think you shouldn’t own real estate in your IRA.

So how do you get the best of both worlds?

Well here’s step 1:  Recognize that it’s fundamentally VERY WISE to be a long-term owner of high-quality cash-flowing real estate.

Step 2:  Understand that it’s both TOTALLY LEGAL or LEGIT to do real estate deals in your IRA, but also very difficult to avoid running afoul of the rules if you do everything… or much of anything… yourself.

Step 3:  Have somebody else do it all for you!  Get all of the benefits with none of the work, and without the risk of breaking IRS rules because you’re “too close” to the deal!

But how?  How can you have somebody else do it all for you?

Actually, there are at least 3 different ways, and one of them is bound to be right for you.  Care to know what they are?  I thought you would… and that’s why I invite you to join in tomorrow’s edition of self-directed investor talk where I’ll outline those 3 methods and help you to see which one fits your precise needs.  Because remember, my friends:  With even a modicum of wisdom in picking cash-flowing real estate deals for your IRA, the probability of long-term success is stratospherically high, and I’ll tell you all about in in tomorrow’s edition of this very show.

And hey – remember it’s our 300th episode today.  Would you be willing to give us here at SDI Talk a bit of a “congratulatory” gift for reaching this milestone?  All I ask is this:  If you like this show – and only if you like it – then do this:  If you haven’t yet given us a 5-star rating and written a review for us over at iTunes, PLEASE PLEASE PLEASE do that for us… it really helps to bring many more listeners to this show.  And I can promise you, I’ll acknowledge you on air during this show if you leave a written review.  And if you HAVE already done that, would you be so kind as to tell a friend or colleague about this show?  I’ll appreciate it so very much!

My friends, invest wisely today, and live well forever!

Bryan Ellis

Bryan Ellis is the host of Self-Directed Investor Talk and has been called a "nationally renowned expert" in self-directed retirement accounts. Bryan's writing can be found in Forbes, Entrepreneur, TheStreet.com and other highly regarded publications.

View all posts

Add comment

Your email address will not be published. Required fields are marked *

Bryan Ellis

Bryan Ellis is the host of Self-Directed Investor Talk and has been called a "nationally renowned expert" in self-directed retirement accounts. Bryan's writing can be found in Forbes, Entrepreneur, TheStreet.com and other highly regarded publications.