Guide to Due Diligence For Self-Directed IRA Investors

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With a self-directed IRA, you can pick your own investments based on your own experience and expertise. This gives you the freedom to grow and build your retirement in ways most investors never imagine! But with this freedom comes some added responsibility— specifically, you need to vet your own investments. That’s not something IRAR or another self-directed IRA custodian can do for you, you’ll need to do it yourself.

If you’re wondering where to start, IRAR’s here to help. Here’s a few things to keep in mind when doing due diligence for your own self-directed IRA investment.


Due Diligence— Essential for Self-Directed IRAs

The main reason you should be performing due diligence on any potential investments is risk and the potential for fraud. Not every investment or offering is fraudulent, but fraudsters tend to target the trusting and under-informed. Don’t be too trusting and make sure you’re informed to try and thwart these disingenuous offerings.

These investments will look okay on the surface, but don’t hold up to scrutiny. So— scrutinize to protect yourself and your retirement savings.

REMEMBER— You also need to make sure you aren’t investing with any disqualified persons. Per the IRS, your IRA can’t engage in certain prohibited transactions. Any transaction with any lineal ascendants or descendants is prohibited, as is any investment advisor, provider, custodian.


Thoroughly Research the Investment

One of the best ways to make sure your investment is sound is to do basic research. Ensure the offering is as advertised, and not just a Ponzi scheme based out of someone’s garage. Ask questions, demand financial statements and information, and check out the physical property in person (or hire someone to do so). See if anyone else is involved in the deal, if possible. Google the investment. If the business or your investment has a physical location, look it up on Google maps. What do you see?

RED FLAG: Any promise of guaranteed returns or “can't miss” opportunities are suspect.

TIP— Don’t rush into an investment decision. Missing out on what could maybe be a good deal is much better than losing your savings to a scammer.


Vet the Individuals and Companies Involved

Beyond just the investment itself, are the people involved trustworthy? You need to completely vet the other people involved in the transaction as well, beyond just the investment itself. From the bank to the real estate agent, to the title company and any other person or entity involved— they should all be vetted. Does the lawyer have a good reputation? Is the broker registered, does the representative seem knowledgeable? You can google this too. You can check out the disciplinary history of brokers and advisers on FINRA.

Unscrupulous individuals can fabricate information— so make sure you’re getting your information from a legitimate and trustworthy source.

RED FLAG: Unsolicited investment offer from unknown individuals, especially when coupled with other warning signs— this usually doesn’t happen, except with scammers.

TIP— Check out the company’s financial statements and other disclosures to see if the information you’re being given is as it seems.


RELEVANT: Choosing a Self Directed IRA Custodian for Real Estate Investments


Get the Opinion of Other Investors

Joining investment clubs and going to organized events can be beneficial for multiple reasons. Not only can you find other investors who have similar interests and complementary backgrounds, you can gain knowledge and skills, AND find potential investments.

But also— other investors offer unique perspectives and real, hands-on experience you can learn from, and in that same way can be a good place to go to get a “gut-check” on an investment.

If you have a specific type of deal or investment in mind, introduce the topic and get the opinion of others. You can see what others are saying, good and bad, about your chosen investments. You never know— maybe someone you bring it up to is involved with your chosen investment type. You might find a partner or a good deal, or at least get a sense of how other investors are thinking. This can help you avoid their mistakes and learn from their success.

RED FLAG: If other investors seem skeptical, pay attention. It doesn’t mean the investment is a scam, but it’s worth considering the possibilities.

TIP— Ask a promoter for more information about the market, or for references. These investors and promoters are on the ground every day, and they may have some helpful sources you otherwise wouldn’t have found.


Inspect Physical Assets (Like Real Estate) In-Person

If you’re looking to invest in physical assets like real estate, it’s important to see the asset in person (or have someone you trust do it for you). It may seem like a hassle, but a bit of a hassle is way better than losing your entire investment to an asset or provider that doesn’t live up to its promise.

Are you buying a bundle of raw land in an area prime for development— or is it a track of land unsuited for homes, a marshland filled with endangered frogs, or right next door to a power plant? Is the house in an up-and-coming neighborhood that draws reliable renters, or in an area with a ton of empty houses and low rents? Is the business doing well, making profits and looking to expand, or are they in dire financial straights and barely holding on? Don’t just trust the seller— verify for yourself.

RED FLAG: If the promotor for some reason won’t let you fully inspect the investment, be aware. Whether that means seeing the full financials or, if buying real estate, not letting you see the full property in person.

TIP— if it sounds too good to be true, it typically is. Do not “SEND MONEY RIGHT NOW” if you have not inspected, or vetted the investment.


Find a Trusted Advisor to Assist

Though your initial review of your investment may seem promising, it may be worth it to consult an outside advisor or two to ensure you’re making the right decision.

Your lawyer, tax professional, or other advisor may have additional information about the investments you’re considering. And even if they don’t have any idea, they have better access to different resources and can give you better insight on the individuals in their industry. Maybe they know this provider or investment by name— and their insight can help you make a more informed decision.


In a Nutshell

Self-directed IRAs offer investors incredible opportunity and flexibility in choosing investments.. Though self-direction offers the ability to grow your retirement at a faster rate while investing beyond the typical stocks, bonds, and mutual funds, if you don’t do your due diligence you could end up losing it all on an investment that doesn’t perform well (if at all).

Though it can seem tedious and you want to move quickly, it’s worth it for you to take a good look at any potential investments. These investments aren’t vetted by your IRA custodian, and it’s up to you and your advisors to make sure these alternative investments are as good as they seem.

The SEC’s Office of Investor Education and Advocacy has a good website that provides many investor tools to avoid scam.

If you have any questions about this process, or self-direction in general, we’d be glad to help. Our team is highly experienced, with an average of 8 years’ experience in the industry, and we’ve seen almost everything. Reach out to us by phone or by email or sign up for a free consult with one of our experts— we’d love to answer your questions.



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