Due Diligence Mistakes When Vetting Self-Directed Private Deals

Published on September 8, 2026

A big part of being a self-directed investor is being responsible for conducting full due diligence before making investments through a self-directed IRA.

Private equity and private placements are among the popular types of alternative assets allowed in these plans. If you are thinking of including a private deal as part of your retirement portfolio, consider these common investor errors, pitfalls, and red flags that may be overlooked when vetting private deals.

• The investor doesn’t fully understand the asset. First and foremost, make sure you, as a self-directed investor, fully understand the asset, its position in the market or its industry, its liquidity, and your exit options. In other words, know what you are committing your funds to before you send instructions to the self-directed IRA custodian.
• Seller information is not independently verified or is incomplete. Trusting seller data alone is not as reliable as having documentation that’s been verified by a neutral third party. Also, check for potential liabilities that may be hidden, such as unrecorded debts, tax liens/unpaid taxes, lawsuits, and in the case of real estate, environmental liens.
• Financial documentation is not complete. Make sure you have access to all the financial statements you need to make an informed investment decision. Check that those records are complete and that the income and expenses associated with the asset are clearly recorded. Transparency is crucial to any trustworthy transaction.
• “Guaranteed” returns are too good to be true. Unrealistic promises or claims of high yields and assured profits should be treated with skepticism until the investor has thoroughly researched the entity. For example, large revenue spikes should be examined and treated with caution. Of course, this is hard to do with a startup but if the company has passed its earliest stage, check out the ROI history.
• The seller is too eager and is using high-pressure tactics. This is a major red flag. Don’t let the seller rush your review process. A legitimate investment opportunity does not need to be rushed to get participation. Remember, there will always be other private equity opportunities in which to invest.
• Leadership is weak. A revolving door among leadership is cause for concern. So is weak middle management (or lack of it) as well as poor transparency about operations and goals. Be sure to research the investment management and/or sponsors—their backgrounds, investment track records, and professional histories and credentials.
• Don’t skip the legal and tax review! Although investments in self-directed IRAs are tax-advantaged, there may still be tax consequences or legal concerns about any deal. At Next Generation Trust Company, we always recommend our clients consult with a trusted advisor about any deal before sending us investment instructions to execute.

‍ONE LAST TIP: Make sure you are working with the right self-directed IRA administrator and custodian.

As you can read on our Mission & Values page, Next Generation is committed to the highest level of service and to ensure our clients have the tools and support necessary to control their financial futures by investing with self-directed retirement plans. Part of this service is guiding our clients through the setup and investment process, answering questions promptly, offering education opportunities about self-direction as a retirement wealth-building strategy, and reviewing clients’ investment instructions to ensure they comply with IRS guidelines for self-directed IRAs.