It’s now easier than ever to invest in real estate through a retirement account
There is a way, though, that investors can invest in private real estate through their retirement accounts. Some self-directed IRA administators, like Millennium Trust and Pensco, have started to allow investors to invest IRA funds in real estate crowdfunding offerings.
First, let’s provide a little background on self-directed IRA’s. Like regular IRAs, self-directed IRAs allow investors to grow their retirement account by investing and can be structured as either Roth IRA’s (contributions are non-deductible, but the entire amount can be deducted tax-free in retirement) or traditional IRA’s (contributions are deductible, but taxes are paid on withdrawals).
Unlike regular IRA’s, though, self-directed IRA’s allow for alternative investments like real estate. Traditionally, investors have been required to set up a separate LLC through their self-directed IRA in order to invest in real estate assets. Fortunately, investing in real estate crowdfunding offerings through a self-directed IRA is simple. For example, Entrust allows investors to simply open a self-directed IRA account, fund it, and then start investing online.
Obviously, self-directed IRA’s are not the right move for every investor. Some investors may feel that alternative investments are too risky to carry in tax advantaged accounts, while other investors may already be over-allocated in real estate as an asset class. However, for those investors who feel that investing in real estate crowdfunding offerings through self-directed IRA’s is right for them, the potential rewards can be great. Self-directed IRAs grant investors the tax benefits of a tax-favored retirement account, so investments can have much greater profit potential than typical real estate investments. Dan Caplinger of The Motley Fool notes that “[j]ust as venture capitalists often target specific businesses with strong prospects to outpace the crowd, so too can self-directed IRA investors pick and choose the best investments that could help their retirement accounts soar in value.”
Real estate crowdfunding and self-directed IRA’s allow investors to tap into these investments. Industry experts generally suggest that anywhere from 5-15% of a portfolio should be invested in real estate. The average 401k size is roughly $100,000, so how does one invest $5,000 to $15,000 in private real estate (as opposed to REITs)? Real estate crowdfunding is the answer. Many platforms (including PeerRealty) allow investors to participate in some offerings for as little as $5,000. Self-directed IRA’s (which can include funds rolled over from 401k’s when changing jobs) allow investors to access that missing component of their portfolio in a tax-efficient manner.
PeerRealty offerings do allow investors to invest in real estate crowdfunding offerings through self-directed IRA’s. We can complete and sign any documents that your IRA administrator requires, and our investor relations department can answer any questions you have about the process.
If you’re interested in taking control of your investments, discuss adding a real estate crowdfunding component to your portfolio with your financial advisor today.