Crowdfunding, IRAs, and You


Self-directed IRAs can be an amazing retirement option. Not only are these accounts tax-advantaged, but they allow you to take advantage of real estate investing with crowdfunding. You might be capped on the amount of cash you can contribute to an IRA every year, but with the potential returns that could come your way, this retirement investment option must be considered.

Here are the advantages that a self-directed IRA and real estate crowdfunding could bring your way.

1. You Can Make Up To 33% More Cash Per Property.

The strongest tax-offset benefits come when you’re using IRA money. There’s just not getting around the fact that you get to increase after-tax profits from equity or loans to builders and owners by up to one-third per property. Of course there is no guarantee on any investment, but the potential of using IRA funds is something that must be considered.

2. It Doesn’t Help Certain Types Of Real Estate Investing.

When IRA funds are used for a property, it can’t become a tangible asset that you benefit from personally. For those that flip houses or use debt and equity combined to secure financing, then there are taxes that apply to you that would come out of your IRA funds. You wouldn’t be able to oversee the flipping process either as you’d have to pay a contractor out of IRA funds to repair the property. This is one where your cash can work better for you outside of a tax advantaged account.

3. You’re Still Going To Need a Custodian.

Even with a self-directed IRA, a custodian must be involved so that the transactions can be executed in a timely fashion. There are good custodians that respond immediately so you can get the deal that you want and close quickly. Others tend to drag their feet because they’re trying to maximize their own profitability and that could cause you to lose a real estate deal. Make sure you take plenty of time to perform your due diligence on the custodians you’re thinking about because this decision could make or break your self-directed IRA.

4. Know What The Scale Of Fees Happens To Be.

Most custodians for a self-directed IRA tend to have a reverse sliding scale for their fees. This means small value accounts tend to get charged a higher percentage per transaction and large accounts get a smaller percentage. For rental properties, this can be especially problematic as there may be a fee for all incoming rent payments and outgoing costs for maintenance requests. Make sure you know what all of your fees and expenses will be before finalizing any arrangements.

5. Small Investments Through Crowdfunding Make a Lot Of Sense.

You can take some time to build-up your portfolio when looking at real estate through crowdfunding eyes. It may take up to a year or more to build up enough of a portfolio so that a self-directed IRA makes sense. Just remember to not rush into this process, research each investment, and only pull the trigger when you’ve got an advantage. This will get your self-directed IRA off on the right foot.

6. Remember Where The Blame Lies.

You’ve got virtually no outs when it comes to the self-directed IRA. You’re the one calling the shots. You’re the one choosing the custodian. You’re the one getting involved in crowdfunding campaigns which involve real estate. There’s a lot of upside to having everything under your control. It also means you’re the only one to blame when things go wrong. Having an advisor or mentor when first beginning this process can help immensely.

7. You Can’t Combine Funds. Ever.

If you have a great real estate deal and you want to use IRA money for it, then your IRA money has to cover all of it. You can’t mix personal funds outside of this tax advantaged account with the tax advantaged money. If you have contribution numbers that can still be added to the IRA, then that is a way to add some cash to the mix, but if you’ve maxed everything out, you will have to look for a different deal.

A self-directed IRA combined with real estate crowdfunding is a powerful tool that can be used to create a financially sound retirement. Tread carefully and avoid custodians that charge high fees and expenses. Invest when it makes sense. In doing so, you might be able to see your IRA grow like never before.