Using a Self-Directed IRA in Real Estate Crowdfunding

Over the past 4 decades investors and non-investors have chosen to invest in their retirement by investing in real estate. Investing in real estate in the past, often times was done using stocks, bonds, mutual funds, or CD’s within an individual retirement accounts. Investing with a self-directed IRAs offer non-traditional investments and have become more popular in recent years. Self-directed IRAs in real estate investing is more accessible for real estate investors than it once was. A self-directed Ira allows the account holder to invest in precious metals, tax lien certificates, real-estate and many more options.

Think for a moment of the term self-directed IRA. What does the term truly mean? A self-directed IRA refers to alternative investment options that are offered or accepted by the IRA’s custodian. A custodian is an institution or a financial institution in charge of keeping record & reporting your transactions to the IRS. Self-directed IRAs with real estate investing must accurately report the value yearly to the custodian. The custodian is responsible for making sure all transactions are legal, ethical, and allowable by the IRS rules and regulations for self-directed real estate IRA investing.

Roth and traditional IRAs are both considered to be self-directed IRAs. They allow for the custodians to permit of wide range of investment opportunities within an individual retirement account. One of these options is real estate investing. This option makes owning rental properties an appealing retirement alternative for investors.

Though self-directed IRAs can be a great option, it’s extremely easy for an investor to make a wrong investment that can cause the account to be dis-allowable by IRS regulations and tax code standards. There are some key points that you should keep in mind when using a self-directed Ira to invest in real estate. Remember that just because something is allowable doesn’t mean that it’s the best option for your retirement funds.


Benefits and Risks

When looking to use self-directed IRAs as options to invest in real estate, you must take certain steps before being able to do so. For example, the non-traditional methods would have been using stocks bonds, mutual funds, CDs or 401ks. The 1st step an individual would have to make is converting 1 of these options into a self-directed IRA. There are many reputable companies that can aid in starting up a self-directed IRA account.

Some IRA custodians are more complex in structure than and so it is important to thoroughly do your research. Remember to always examine any and all potential expenses and fees and examine the overall impact it may possibly have on your self-directed IRA account for investments. Look for the custodian’s overall structure. Always consider the possibility of losing money with a custodian when starting an Self-directed IRA account. In most cases the custodian will advise an (LLC) limited liability company or other entities such as a trust before the purchase of any property.

Perhaps the biggest benefit of a self-directed IRA is the tax-deferred income you’ll receive until the day you take your very 1st withdrawal. When investments are placed in Roth IRAs specifically, investment profit gains and withdrawals are tax-free.

The one thing worth considering about Self-directed IRAs is that at the age of 59 and ½ the account holder must begin withdrawals from the accounts. This means that any funds withdrawn before the age of 59 and ½ are taxed as ordinary income on income tax returns. The majority of active investors usually buy, sell and flip properties in SDIRAs. These investors move funds from project to project and maintain the tax-deferral status for the IRA.

Familiarity is another major benefit of SDIRA in real estate because these types of IRAs give Investors the ability to make investments they know and understand. Often market uncertainty leads investors to invest in areas that are familiar to them and investors who do so do it because it’s a way to protect their interest in the investment. This type of familiarity is one of the biggest upsides to SDIRA real estate accounts.


It’s important to realize that an investor can apply these benefits to crowdfunding real estate. Crowdfunding is a method of raising money for a businesses and ventures for investors (the major idea behind crowdfunding is raising money for venture investments). Many investors were willing to invest small amounts of money on bigger projects for bigger return than normal. This concept opened the doors for many investors to reach levels in their investing careers that they may have otherwise never reached. In the past, funds were usually raised amongst private equity in the development company through REIT. However, in 2012, Jump Start Your Business modified regulations and opened the doors for a more direct approach for soliciting accredited investors.

SDIRA’s with real estate crowdfunding are rapidly growing because of the entrepreneurship potential. Through crowdfunding, investors are able to get access to the real estate market with small amounts of money. These investors are also able to choose which real projects that they invest their money in and have the opportunity to work directly with developers.