If you’ve happened to look closely at your Individual Retirement Account lately, you’ve probably noticed that its performance has been less than stellar. That’s precisely why the number of self-directed IRAs is exploding. Many people believe that they can do at least as well as the managers of their IRAs have to this point.
Of course, your options with a self-directed IRA are almost as numerous as the sands on the beach, but some investments have performed consistently better than others. Here are a few ideas for how to invest your self-directed IRA:
Property tax sales
Did you know that you can bid for tax liens at public auction? Did you know that this is an excellent investment strategy? With the advent of the Internet, you can bid for tax liens online, even those that might be located a great distance from where you live. After you bid and win a lien, you must wait a given amount of time (a “redemption period”) and the lien might be repaid during this period. If not, you can initiate foreclosure proceedings and acquire the title to the property or a tax deed sale of the property. Occasionally, the original lien holder comes through and pays off the debt, but it is more likely that you will keep your investment in the property. This is a long-term strategy because the waiting time for all of this to fall in your favor can last up to 10 years. In the meantime, you will benefit from huge returns on the investment, up to 12% per month in some states. It should be noted that some counties allow the interest rate to be bid down; avoid those counties if at all possible. All in all, investment in property tax sales can give you either a sound return or an amazing one. It’s a no-lose investment if you play by the rules and have some patience.
As unusual as this may sound, more and more holders of self-directed IRAs are attempting to raise cattle, encouraged by the technological developments that have made some bull semen quite valuable to others. As artificial insemination (AI) has grown more widespread, opportunities for investment have as well. Wannabe ranchers can now purchase purebred stock and raise animals to be studs or to produce embryo transfers. When you realize that a dairy bull can produce 10,000 sons and 10,000 daughters during his lifetime, the wisdom of such an investment strategy becomes clear. Some bulls make up to $3 million/year for their semen—not bad for an animal! And, considering that bulls can be purchased for less than $10,000, the math gets even more appealing. The drawbacks to raising cattle are the uncertainty of a bull’s life, the need to truly understand the industry and the stiff competition offered by more seasoned cattle managers. That said, it can be mighty hard to turn down an investment of $30 to make $100, as Beef Magazine recently reported on a recent AI group. Do be sure to buy several bulls and not pin your hopes on only one that might have questionable productivity. You also would be wise to hire a consultant and work with a given breeder to ensure the greatest possible return on your investment.
Lend money for interest
Tired of how banks behave? Feel sorry for people who get exploited by loan sharks? Get into the business for yourself and begin to lend money for interest. You can do this on a huge scale or on a very limited one, depending on how far you want to dive into the mix. Several excellent online sites can enable you to lend money for interest quite easily. You can lend through a site such as Lendingclub.com, which screens potential borrowers and offers higher interest when higher risk is involved, or you can work through a site such as Prosper.com, which involves active bidding for loans as borrowers set their maximum terms. Prosper combines the lowest bidders into a three-year loan for the borrower, so you will know what your return is in a decent amount of time. You can either be the sole lender to an individual of your choice, or be one of 100 lenders that combine to help someone out. Early returns on these investments seem to be in the neighborhood of 10%–probably better than your neighbor’s IRA is performing while in the hands of “experts.”