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Private Real Estate Investing Through a Self-Directed IRA

Published on October 24, 2023

Investment property has long been popular among self-directed investors and the private real estate asset class is gaining popularity among self-directed IRA account owners.

 

Investing in private real estate funds within your self-directed IRA is a great way to diversify your retirement portfolio and build a long-term investment that earns passive income. Read on to learn more about private real estate investing.

 

How Do Private Equity Real Estate Funds Work?

One way to think about a private equity real estate (RE) fund is simply a group of people pooling their money to invest in a specific property or multiple properties. Private real estate funds are professionally managed pooled private and public investments in real estate markets. The assets may be multifamily properties, office buildings, warehouses, even student housing and retirement communities. Investing in these alternative assets has the potential for high returns as a source of passive income.

 

As with any nontraditional investment, individuals who wish to invest in private real estate funds through their self-directed IRA should do their due diligence and research the fund and its holdings as well as the investment manager (the sponsor) before sending investment instructions to the self-directed IRA administrator.

 

Private REITs as Self-Directed Investments

Real estate investment trusts (REITs) also comprise commercial real estate investments and generate revenues through rental incomes from the portfolios’ holdings. There are public and private REITs.

 

Publicly traded REITs are companies whose shares trade on major stock exchanges like NASDAQ. Anyone can invest in these REITs. They are registered with the SEC and as such, are subject to the same regulatory compliance issues as other publicly traded companies. They are also subject to supply & demand pressures of the market.

 

Private REITs are not listed on a major exchange and are not subject to most SEC regulatory requirements. Their valuation is based on appraisal of the asset. Since public REITs are not vulnerable to the same market pressures as public RIETs, they offer good portfolio risk protection as well.

 

Although private REITs are typically available only to accredited and institutional investors, self-directed IRAs can invest in these entities they are not publicly traded assets. Non-traded REITs can be an excellent source of passive income because by law, these entities must distribute at least 90% of their taxable income to shareholders as dividends, giving them the potential to provide a steady income stream (and long-term gains) for investors.

 

Investing Through Real Estate Crowdfunding Platforms

RE crowdfunding is a way to raise money online from a large pool of investors for real estate acquisitions. Individuals and businesses can use crowdfunding to access capital from a larger group of potential investors through the Internet and social media. Plus, crowdfunding makes opportunities to invest in real estate accessible to more people. The benefits of RE crowdfunding include liquidity and the potential for high returns. 

 

NOTE: In addition to investing in a private REIT, a private real estate equity fund, or a real estate crowdfunding platform, your self-directed IRA can also partner with another such retirement plan to purchase a specific investment property, with terms worked out between account owners.

 

If you have questions about how investing in private real estate funds and or real estate crowdfunding works through self-direction, you can schedule a complimentary educational session with one of Next Generation’s team members. As a full-service self-directed IRA administrator and asset custodian, we are committed to client education and helpful experts can explain the ins and outs of self-direction as a retirement wealth-building strategy. Contact us by email at NewAccounts@NextGenerationTrust.com or call us at 888.857-8058 with your questions.

 

 

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