Being creative without breaking the rules when it comes to investing your self-directed retirement funds requires a bit more sophistication than simply buying stocks on etrade. The rules surrounding self-directed IRA and 401(k) accounts are pretty stringent. Avoiding self-dealing, dealing with a disqualified party or participating in a prohibited transaction will eventually come back to bite you. If you were going to break tax rules with an IRA, it would have been less expensive to simply break tax rules in general without first setting up a checkbook IRA in the first place. One area of investment where the rules get sticky, but the returns can be huge is investing in online web properties for maximizing self-directed IRA returns. I’ve seen many returns north of 100x with a few simple domain investing tricks.
Website investing is similar to real estate in that there are really only a couple of ways to effectively make a buck. In domain investing, raw domains—much like raw land—represent “potential” and their worth is either judged by exact match search volume, length of the domain, .TLD status, or ability to brand. Raw domains represent the best method for a quick return with IRA funds for a couple of reasons.
First and foremost, raw domains are above the reproach of disqualification. There is no management required, thus significantly reducing the potential of even mingling with potentially disqualifying parties. Websites and virtual businesses also work, but not unless the management is separate from the investors. This is often difficult to show, especially if you’re ever up for an audit. My personal preference is sticking with raw domains, especially if you’re an individual investor. They’re easier to deal with as an asset flip rather than worry about a virtual company. Second, raw domains represent an asset that can be directly owned by your self-directed IRA LLC. As a qualified asset, it can be purchased with the LLC and sold for a profit within your tax-benefited retirement account.
Buying steady cash flow websites also works, especially if they’re on autopilot at the time of purchase. It’s difficult to find such deals, as the truly best deals are rarely sold and if they are they are given to family—which in the IRA’s case would disqualify the transaction. But, if you can find them on the cheap, flipping them for a profit on the website aftermarket is an effective strategy.
The key to making money at anything is effective arbitrage and nowhere are such opportunities more apparent than in domain name investing. Great domains can still be purchased for $10, but opportunities in that market are rare unless you are able to snag a previously-owned domain that has dropped. In fact, domain drop lists are another great place to find and purchase domains for investment with your IRA. Thousands of domains are dropping on a daily basis. Most of them are pure garbage, but opportunities still exist for arbitrage. Buy low and sell later. Large returns are almost guaranteed with this type of strategy.
Domain name acquiring and website investing is nothing like it used to be. Raw domains rarely go for six figures unless the transaction is justified by the cash flow and branding capabilities of a particular domain name. In addition, search engine algorithm changes have also dampened the effectiveness of raw web properties. But opportunities still remain for investors who are savvy and play by the rules.
Nate Nead is a domain investor and writer for Silverstone self-directed IRA.