Investing in real estate is a great way to build wealth. However, most people don’t have the time or money to buy a home and fix it up themselves. That’s where syndication comes into play. Syndication allows you to be involved in a real estate deal without having to put in any of your own money. Instead, you invest with other investors who are buying the property together.
Many people aren’t aware that they can use their retirement assets to purchase real estate properties, with no tax penalty or tax liability. The key is finding the right type of property and the right company to work with.
WHAT IS A SELF-DIRECTED IRA?
A self-directed IRA is an Individual Retirement Account that gives you more control over your investment options. Unlike traditional IRAs, which are limited to a small selection of stocks, bonds and mutual funds, a self-directed IRA allows you to invest in a wider range of assets — including real estate, private companies and tax liens — without the fees and paperwork associated with other retirement plans.
The self-directed IRA allows you to invest your retirement funds into almost any investment that you wish, including real estate, tax liens, and even business opportunities. This gives you the flexibility to grow your retirement savings while maintaining control over how your money is invested.
The most common type of self-directed IRA is called a Solo 401(k). You can open one if you’re self-employed and have no full-time employees (other than yourself). Solo 401(k)s allow you to contribute up to $56,000 per year in 2018 ($62,000 in 2019), plus an additional $6,000 if you’re 50 or older.
There are also Roth IRAs and SEP IRAs that allow for self-direction.
How to Switch Over to a Self-Directed IRA
If you’re thinking about switching over to a self-directed IRA, here are the steps you need to take.
First, you’ll want to make sure that your current IRA custodian (the company where your IRAs are held) allows for self-direction. If not, it’s time to start shopping around for a new IRA custodian.
Next, you’ll want to open up a new account at your new custodian. This is usually done by sending in all of the necessary paperwork and forms to the custodian, which they then process and send back to you once it’s been approved. Once this step is complete, the next step is actually opening up your new self-directed account with the custodian (which can take anywhere from days to weeks depending on how busy they are).
Once you have your new account opened up with your new custodian, it’s time for you to transfer over all of your existing holdings from your old account(s) into this one (which can also take anywhere from days to weeks depending on how busy they are). Once everything has been transferred over successfully, congratulations! You’re now officially ready to start investing in whatever interests
Using a self-directed IRA in real estate syndication
The self-directed IRA is a powerful tool for investors who want to diversify their investments. Using a self-directed IRA in real estate syndication can help you get involved with real estate without having to put any of your own money into the deal.
Real estate syndications give you the opportunity to get involved in real estate investments without having to front the money to buy a property. You simply invest with other people who want to buy properties and then share the profits or losses when those properties are sold.
BENEFITS OF INVESTING IN A REAL ESTATE SYNDICATION WITH A SELF-DIRECTED IRA
There are many benefits to investing in a real estate syndication. With a self-directed IRA, you can diversify into real estate, allowing you to put your money in assets and markets you wouldn’t be able to with other investments. Here are some of the most important:
- You’ll gain access to a wider range of investment opportunities than you would if you were working with an institutional investor.
- Your investment will be spread over several properties, which means that if one property fails, your portfolio won’t be affected by it (as long as the other properties are successful).
- You can diversify into other types of assets, like private equity and hedge funds, in addition to real estate (as long as they meet certain requirements).
- You can invest in foreign markets (as long as those markets comply with IRS rules).
- There is no limit on how much money you can put into each property or deal (unlike other types of retirement accounts where you must contribute a certain amount each year).
Final Thought
As you can see, there are many benefits to investing in a real estate syndication with a self-directed IRA or solo 401(k). It is well worth your while to dig into the details of how they can work for you. We may even be able to help you set one up. Give us a call and we will answer any questions that you have. Your money will certainly be at work for you.
WATCH OUR FREE ON-DEMAND WEBINAR TO KNOW THE BENEFITS OF INVESTING WITH A SELF-DIRECTED