If you are not sure then what you need is an example.
Let's say you have $100,000.00 in your IRA account at a major brokerage house. You want to retire in 10 years.
What will this IRA be worth then?
In order to answer that we need to make certain assumptions: You will invest another $5,000.00 per year into your account at the beginning of each year in an effort to "catch up."
You will "earn" an 8% ROI compounded annually because your IRA is "invested" in a mutual fund that historically has grown at that rate.
| year | Beginning | Contribution | ROI | End of Year |
| 1 | $ 100,000.00 | $ 5,000.00 | $ 8,400.00 | $ 113,400.00 |
| 2 | $ 113,400.00 | $ 5,000.00 | $ 9,472.00 | $ 127,872.00 |
| 3 | $ 127,872.00 | $ 5,000.00 | $ 10,629.76 | $ 143,501.76 |
| 4 | $ 143,501.76 | $ 5,000.00 | $ 11,880.14 | $ 160,381.90 |
| 5 | $ 160,381.90 | $ 5,000.00 | $ 13,230.55 | $ 178,612.45 |
| 6 | $ 178,612.45 | $ 5,000.00 | $ 14,689.00 | $ 198,301.45 |
| 7 | $ 198,301.45 | $ 5,000.00 | $ 16,264.12 | $ 219,565.57 |
| 8 | $ 219,565.57 | $ 5,000.00 | $ 17,965.25 | $ 242,530.81 |
| 9 | $ 242,530.81 | $ 5,000.00 | $ 19,802.46 | $ 267,333.28 |
| 10 | $ 267,333.28 | $ 5,000.00 | $ 21,786.66 | $ 294,119.94 |
Now for our Land assumptions: you will be able to find 40 acres outside of town that appear to be in the Path of Progress. You are able to pick this parcel up for $5,000.00 per acre, or a total of $200,000.00. The owner agrees to carry back a first trust deed at 8% interest payable $1,000.00 per month or more until paid.
This particular parcel is well-suited for growing palms. A palm grower has agreed to lease the property from you for $12,000.00 the first year with a 7.2% per year escalator.
The whole project is put in management to make it just as easy to manage as the mutual fund.
| Year | GSI | Expenses @33% | NOI | Contribution | Gross Cash |
| 1 | $ 12,000.00 | $ 3,999.60 | $ 8,000.40 | $ 5,000.00 | $ 13,000.40 |
| 2 | $ 12,864.00 | $ 3,087.36 | $ 9,776.64 | $ 5,000.00 | $ 15,777.04 |
| 3 | $ 13,790.21 | $ 3,309.65 | $ 10,480.56 | $ 5,000.00 | $ 16,257.60 |
| 4 | $ 14,783.10 | $ 3,547.94 | $ 11,235.16 | $ 5,000.00 | $ 16,492.76 |
| 5 | $ 15,847.49 | $ 3,803.40 | $ 12,044.09 | $ 5,000.00 | $ 17,536.85 |
| 6 | $ 16,988.51 | $ 4,077.24 | $ 12,911.26 | $ 5,000.00 | $ 19,448.11 |
| 7 | $ 18,211.68 | $ 4,370.80 | $ 13,840.88 | $ 5,000.00 | $ 20,288.99 |
| 8 | $ 19,522.92 | $ 4,685.50 | $ 14,837.42 | $ 5,000.00 | $ 20,126.40 |
| 9 | $ 20,928.57 | $ 5,022.86 | $ 15,905.71 | $ 5,000.00 | $ 21,032.12 |
| 10 | $ 22,435.43 | $ 5,384.50 | $ 17,050.92 | $ 5,000.00 | $ 29,370.98 |
| 11 | $ 24,050.78 | $ 5,772.19 | $ 18,278.59 | $ 47,649.57 |
| Debt Service | Net Cash Flow | Principal | Balance |
| $ 12,000.00 | $ 1,000.40 | $ 4,000.00 | $ 96,000.00 |
| $ 15,000.00 | $ 777.04 | $ 7,320.00 | $ 88,680.00 |
| $ 16,000.00 | $ 257.60 | $ 8,905.60 | $ 79,774.40 |
| $ 16,000.00 | $ 492.76 | $ 9,618.01 | $ 70,156.39 |
| $ 16,000.00 | $ 1,536.85 | $ 10,387.49 | $ 59,768.90 |
| $ 18,000.00 | $ 1,448.11 | $ 13,218.49 | $ 46,550.41 |
| $ 20,000.00 | $ 288.99 | $ 16,275.97 | $ 30,274.44 |
| $ 20,000.00 | $ 126.40 | $ 17,578.05 | $ 12,696.39 |
| $ 13,712.06 | $ 7,320.06 | $ 12,696.39 | $ - |
| $ - | $ 29,370.98 | ||
| $ - | $ 47,649.57 |
After the 10 year lease, and just in time for your retirement you have the property appraised. It seems that it is now worth $25,000.00 per acre or $1,000,000.00 for the entire 40 acres. This increase is partially due to inflation, but it is also due to the fact that the town has grown out towards your land.
So compare the performance of your traditional IRA investment with using a self-directed IRA to engage in a little Land Banking:
$294,119.94 versus $1,029,370.98. It's NO CONTEST! You end up with 3-1/2 times as much money to retire with by banking on land.
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