One of the most important investment tools when considering a self-directed IRA, whether it is a traditional IRA or a Roth IRA, is a versatile portfolio. Taking advantage of alternative asset investing can boost your retirement fund as you explore different markets, utilize your personal knowledge, and design a portfolio that is right for you.

The best form for a diverse SDIRA is one that has a balance between high-profit investments and passive income. As you allocate your assets, you can max out your IRA growth with the proper strategies. The perfect place to start saving for the future is with the bare bones of your account: passive income investments.

What is a Passive Income Investment?

Passive income investments are considered low-maintenance assets that will provide your SDIRA with a steady stream of income. Depending on your IRA, your fund will grow tax-deferred or tax-free overtime with little to no action from you. The benefits of choosing passive assets revolve around simple investments with a decent return. At the same time, as with individual retirement funds, you have many more options to invest your money in.

Beyond traditional investments, there are various types of investment options you can explore. Here are three suggestions that can build passive income for your long-term goals.

1. Real Estate Investments

Opening an SDIRA allows you to invest in alternative assets and one of the most popular is the real estate market. Real estate can generate a decent cash flow, and depending on how you approach it, you can pull in money passively.

The first option is using your real estate investment rental property. This strategy allows a constant passive income stream as regular rental checks filter into your IRA. You can own as many or as few rental properties as your retirement funds allow and reap the benefits. However, it’s important to keep in mind that account holders are responsible for the upkeep of rental properties. You are the landlord, and any repairs or upkeep on the property must be handled by your IRA.

If you want to rent property without the hassle of being the landlord, you could consider REITs or a real estate investment trust. This investing strategy allows you to put money into property but have a property manager handle the upkeep. This can provide a decent payout of taxable income as dividends to investors. The issue with this choice would revolve around your tax bracket. Higher tax bracket investors may take a substantial hit.

The middle-of-the-road option for passive real estate investment is real estate crowdfunding. This involves equity or debt investments. Account holders receive tax benefits of ownership and depreciation deduction without the hassle of being the landlord. Perform your due diligence when selecting a real estate investment strategy, and your retirement fund could benefit from the passive income stream.

2. Dividend Stocks

A good low-risk passive investment option is a stock you are basically paid to own. Dividend stocks are a distribution of a company’s earnings. These dividend-paying stocks flow to shareholders in cash payments, additional shares, or other properties. All this income is owned by your SDIRA in a constant stream of long-term monetary growth.

Investing in a company’s dividend stocks can benefit your account if the company brings in steady earnings. Part of these earnings are pulled and distributed back to investors for a decent profit. This return on investment could be placed back into the company or could be deposited directly into your IRA as you see fit. Of course, with any investment, there is a bit of risk. Dividend stocks are very dependent on the company and can change yearly. If you are a beginner, it may be a good strategy to invest in “aristocrat label” dividends, or funds that have been consistent for 25 years or more.

3. Peer-to-Peer Lending and Private Lending

Another passive income-building strategy to consider involves P2P lending or peer-to-peer lending. If you are looking to lend money to others and add a constant cash-flow to your account, this may be the asset for you. Account holders become a financial institution, allowing borrowers to dodge the middleman and acquire the funds they need for various projects. Whether you choose to lend money for a startup business, or a Trust Deed, social or “crowdlending” gives you the opportunity to write up a contract loan.

Depending on the type of investments you are lending to, this strategy can be risky. If you decide to write a promissory note for a property loan, you have the added safety of physical collateral. A money loan for a business can be a bit trickier, especially if the borrower defaults. Because of this, to bring in a decent payout, you want to be careful who you lend to and be sure to solidify an ironclad payment contract. As the account holder, you can decide the terms of any loan, including the interest rates, the payment schedule, and the life of the loan. When done correctly, your account can grow with a steady cash flow.

Diversify Your SDIRA Portfolio

The best strategy for any SDIRA investor is to have a versatile portfolio. A blend of passive and flexible investments can bring in a decent cash flow for a comfortable retirement fund. As you consider your personal finances, perform your due diligence to pick the best passive income streams that will work for you. Take charge of your retirement and look to brighter golden years. The trusted staff at Horizon Trust is here to assist.