Using Your Self-Directed IRA to Invest in Self Storage

Self-directed IRAs are not for everyone. They are for individuals who want diversity in their portfolio and control of their financial future. They want to create wealth using their knowledge of investments outside of the more traditional stocks, bonds, or CDs.

Real estate investment with a self-directed IRA does not have to be limited to homes and rental properties. Commercial property—like self-storage, deeds of trust, and businesses, offer investment options that can provide additional control over your finances. 

The stock market is typically volatile and subject to dramatic day-to-day swings. When you diversify from stocks to self storage, you hold tangible assets. Unlike stocks, these assets provide steady appreciation plus cash flow. For this reason, many investors hold real estate in their portfolios so that they are not bound to the stock market.


What is a self-directed IRA?

A self-directed IRA is unique due to the available investment options and because it puts the owner in control.  

Using a self-directed IRA to invest in self storage properties is a smart strategy. Technically, a self-directed IRA is no different than other IRAs and 401(k)s. It was created by the government to permit investments to grow tax-free or tax-deferred, compounded over time, to maximize growth. However, most IRA custodians allow investment only in approved stocks, bonds, mutual funds, and CDs.

A truly self-directed IRA allows investment outside of traditional stocks, bonds, and CDs. If you want to build wealth and cash flow, investing in self storage using your self-directed IRA with Pinnacle Storage Properties is a sound strategy. 

What are the advantages of using a Self-Directed IRA to invest in self storage?

  • Diversification: The primary advantage of using a self-directed IRA is diversification. The stock market is typically volatile, and a stock can, in rare cases, fall to a worth of zero dollars. When you diversify from stocks to self storage, you hold tangible assets. Unlike stocks, these assets provide steady appreciation plus cash flow into your self-directed IRA.  


  • Control: If you see a strong real estate opportunity, or a shift in the markets, you can invest accordingly. With a self-directed IRA, you can loan IRA money to non-disqualified persons (disqualified persons being spouse, parents, children or in-laws), while keeping all tax benefits associated with IRA accounts.  


  • Asset Protection: An investor who purchases a self-storage property with a Self-Directed IRA can have multiple exit strategies, from sale or refinance, to value-add improvements/repositioning and more. This provides more options for protecting the investment in the event of a downturn. The same cannot be said about investments in stocks, bonds and the like. Even in a down market where real estate values decline, self storage is recession resistant. Investors will still often benefit from continual cash flow.


  • Retirement: Many retirement savers are interested in the commercial real estate market as a tax-deferred real estate asset.


  • Generational Wealth Building: Unlike traditional IRAs, in which beneficiaries have to distribute the value of the IRA over ten years, a Self-Directed IRA can utilize what’s known as “stretch” provisions to pass the tax free Roth IRA growth on to heirs over the beneficiary’s lifetime. 


  • Legal Issues:   As long as you stay within IRS guidelines, using a Self-Directed IRA is entirely legal.There are rules and regulations that you need to follow, primarily relating to taxes. Remember to consult with a tax attorney or other financial professional prior to making any financial decisions.


How should I plan my next steps and exit strategy?

The life cycle and direction of your Self-Directed IRA investment are your decisions. If you want to sell an asset, complete a Sale Direction of Investment form and include supporting documentation. The asset is removed from your IRA in exchange for the proceeds of the sale.

You may also distribute cash or assets from your account by completing a Distribution Request form. Or, you may elect to hold the asset to pass on to a beneficiary after death to create a tax-advantaged legacy.