In the private lending space, raising capital is key to longevity and growth. As private lenders and fund managers seek more capital to serve a red-hot real estate market, new sources of funding are available that may have yet to be considered.
Individual retirement accounts have been around for generations, allowing Americans to save for their future retirement goals with an account that can provide certain tax advantages.
Not all IRAs are the same, as there are self-directed IRAs and non-directed IRAs. A non-directed IRA, such as a Roth IRA, is typically managed by an institution and holds assets that are generally publicly traded. A self-directed IRA is an account where the owner manages the assets themselves. The investor picks and chooses which assets to hold with in the IRA, and performs the due diligence on the assets themselves.
A self-directed IRA is established with the help of a financial institution or custodian that assists with the setup and management of your account. The owner is then able to invest in hard assets such as gold, real estate, businesses, and other non-institutional assets they feel are right for them. The investments are held in a special IRA and are not taxed until retirement. With a smart IRA owner and advisor, the possibilities are endless.
Targeting Self-Directed IRA Owners for Investment Capital
Though there is no formal tracking of just how many self-directed IRAs are participating with hard assets, the number continues to grow. It is estimated that Americans are sitting on over $7.5 trillion in their individual retirement accounts. Consider that a large portion is self-directed, and if those accounts are underperforming, they may be looking for an asset alternative such as real estate trust deeds.
Savvy real estate investors are taking advantage of this enormous market by tapping the owners of these plans to fund their private mortgage pools. Considering that Real estate is the most popular investment in self-directed IRAs, it is easy to see that IRAs can provide a great opportunity to grow your business.
So, how do you find those people willing to allocate a portion of their IRA towards trust deed investments? With trillions in capital stashed away in these accounts, chances are you already have many potential investors in your client database. All it takes is having the basic ability to explain the process of using self-directed retirement accounts to fund real estate transactions, and the assistance of experienced partners to draft the contracts.
The federal government has certain restrictions on what types of assets may be held in a tax-deferred retirement account, but generally speaking, real estate, be it physical real estate or trust deed interest, are considered an acceptable investment that is NOT defined as publicly traded. Private mortgage funds and private debt funds would also fall into this category of “alternative assets.”
Most retirement account holders have goals. And with self-directed IRAs, they are looking for assets that will help them reach their retirement goals as quickly as possible. Private real estate investing is a great match for this mindset. The account holder can diversify in the types of real estate assets they want to hold – be it trust deeds, pools, debt offerings – and lender has access to a revolving capital infusion.