How to Tap into the Private Money Gold Mine

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Want to know where to find trillions of dollars in investor funds for your real estate deals? What to have money that you can invest with deal after deal?

Over the past few years, we have seen a significant increase in the amount of retirement funds (IRA) being invested in real estate deals. For syndicated deals that our clients put together, the portion of funds raised that consists of people’s retirement accounts increased by close to 70% in the past 3 years. I, myself, have also utilized my retirement money to invest in various real estate deals as well.

What Does this Means for Investors?

We should all become familiar with the opportunities now available as a result of this trend. As an investor, you may be able to tap into your own retirement money to invest in real estate deals. As a syndicator looking to raise funds, it is extremely important that you understand the impact of retirement investing so that you may speak to your investor clients about utilizing their retirement money. So if you have not figured it out yet…the private money goldmine is your investors’ retirement accounts.

So why should we target retirement account funds in raising private money and how should this be done?

First, most people do have money set-aside in their retirement accounts. The majority of Americans have stocked away quite a bit of money over the years into traditional IRAs and Roth IRAs. These funds are typically invested in traditional stocks, bonds, and mutual funds. Believe it or not, a large percentage of our population is still unaware that they can actually use their retirement money to invest in real estate.  This is where you need to capture your opportunity. Educate your investor clients on their ability to invest in your deals using their retirement funds. This process is as easy as 1-2-3. The only difference is, instead of investing through their banks or their financial advisors in the volatile market, they simply set-up a self-directed account to take control of their own retirement funds and redirect those funds into your real estate deals!

Making the Deal Happen!

For the potential investor who has money stashed away with their current employer through a 401(k) plan, they may have an opportunity to tap into that money to redirect those into your real estate deals by doing an “in-service-transfer”. They will need to speak to their benefits department at work to find out if they can do the in-service-transfer as different employer plans make have different restrictions. If an in-service transfer is allowed, those funds can then be transferred tax free and penalty free into a self-directed retirement account and into your deals!

Now what if their company says they cannot do an in-service-transfer? Does this mean their retirement funds are all tied up and they cannot use it in your deals? Well, don’t give up so easily! Most 401(k) plans allow employees to borrow from the plan. So you can advise your investor clients to consider taking a loan out from their 401(k) plan to invest in your deals. This allows them to tap into the money in their 401(k) account, use it for real estate investment purposes, and the best part of it is that it is done Tax Free and Penalty Free!

The reason that retirement funds are a great source for real estate investing is because this is what we consider “patient money”. Retirement funds for most people is money that has been set aside specifically for investment purposes. Most of your investors are not counting on this money for their mortgage, groceries, or other monthly living needs. This is great news for you because as a syndicator, as long as you provide the investors with good returns, the chances are that the money will remain with you deal after deal until the investor is ready to cash out at retirement age. Your ability to raise funds once and use it over and over in multiple deals sounds like an appealing idea, right?

So now you know the reasons why retirement funds are the private money goldmine. The next step is to figure out how to tap into that goldmine.

Education is KEY!

First, make sure you understand the basics of how self-directed investing works. You don’t need to be a CPA to explain all the details and the tax benefits to your prospective investors. In fact, I highly discourage you from doing so since you may end up confusing the investors more than necessary. Educate your investors on what their options are when it comes to redirecting their money from the stock market to real estate. If they are interested in your deals, have them contact your CPA or tax advisor to explain how to make the transition happen and explain the benefits to them. (Note: If your tax advisor or CPA does not understand self-directed investing, it may be time for you to upgrade your advisor team).

The amount of retirement money being invested in real estate deals has increased at an astounding rate over the past few years and is the #1 goldmine when it comes to raising private money. So if you are serious about raising some significant dollars for your next deal, make sure you get your plan in place to tap into this goldmine of an opportunity!

Photo: Eric Allix Rogers

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About Author

Amanda Han of Keystone CPA is a tax strategist who specializes in creating cutting-edge tax saving strategies for real estate investors. As real estate investors herself, Amanda has an in-depth understanding of the various aspects of investing including taxation, self-directed investing, entity structuring, and money-raising.

10 Comments

  1. Welcome to the blogs Amanda and WOW…what a great way to make a splash. That was a great article!

    RE syndication fascinates me because I have seen how some people have used them to build huge portfolios. What type of advice would you give to somebody who has never done one before and how would you suggest somebody get started using this strategy?

    • Hi Nick Thanks for your feedback and it is wonderful to be able to share my thoughts you everyone on here! For someone who has never used investor funds in their deals, the first step I recommend is that they actually set up their own self-directed account first and put that into a deal. This way, they can learn about the process first hand and then be able to get an understanding of what their potential investor will go through to get the money set-up and funded. Secondly…education! Checkout custodian websites, webinars, whitepaper, etc. to learn what you can about self-directed investing. A lot of the rules are not intuitive so the more you learn the better you are able to help your investor clients. Last but not least get together with a good self-directed custodian company and CPA to be part of your support team. Hope this helps!

  2. Amanda, great advice to to tap into IRA/401K funds for real estate deals. I set up a self-directed account several years ago after tiring of the schizophrenic stock market, and worrying about the stability of my investment funds.

    I’m concerned, however, about running afoul of the Feds if I actively solicit–you used the term “syndicate”–friends and family money through their retirement funds. I’m referring specifically to any SEC rules related to raising investment funds.

    Can you comment on this? Thanks!

    Jim

    • Hi Jim:

      Thanks for your comment. You are correct in that there are a lot of rules that needs to be followed legally when you are syndicating deals. I am not a legal expert so I would not be a good source to give you guidance on that. You will want to speak with syndication attorneys to find out more about the pros and cons on syndicating as there are generally higher costs with getting the legal document set-up for that. The good thing is that you are protected in case anything happens and an investor wants to come after you. I have attended some classes by an attorney Gene Trowbridge who is a teacher for CCIM and an expert on that topic. You can probably checkout his website for more information on syndication “must-do”s.

  3. Amanda–

    This is the first half of a terrific article. It tells us WHY but it really doesn’t tell us HOW.

    So how does one find SDIRA and SD Roth investors? I have contacted about half-a-dozen Third Party Administrators about referrals to their client base. All have the same answer– We don’t give investment advice or make our clients information available so that you might be able to solicit them in any way.

    I can visit TPA’s sales presentation but by definition none of the people in the room have SDIRA’s currently or they wouldn’t need to be at the TPA’s pitch.

    You can hang out at REI groups but 95% of the people there either have no money or they are active investors themselves and looking for private investors. In a room of 100 there are maybe 4 or 5 actual investors looking for places to put their money. Not an efficient market.

    All well and good to say, go to friends and family. But for that advice I don’t need the SDIRA component and my friends and family don’t have the kind of bucks I need to do the project I am working on.

    So how do you tap into that private money goldmine?

    BTW “Private Money Goldmine” appears to be a trademark of privatemoneygoldmine.com an organization which appears to be a scam as far as I can tell. Big upfront fee to tap into their unlimited investor base which may or may not (my guess is not) actually fund any real transaction.

    • Hi Mark:
      Thank you for your comment. A few observations from my end as a CPA:
      First, custodians will always tell you they cant promote investments. The way you get around that is to partner up with them to bring educational content to their database. So rather than doing a sales pitch to their clients, look at ways to teach them something about investing or give market updates that would be beneficial. If those in the room happen to end up liking your content and then contact you to learn about your investments…then you will have accomplished your goal. I have lots of clients who have successfully taken this approach. Remember…money raising is about building rapport and credibility and not something that will happen by just attending one event. You want to continually give your audience value (as I am sure you have already been doing here on Bigger Pockets!)

      On your other note, I actually see the opposite: most people in the room at custodian held events DO have money…that is why they are there to learn about what they can and should invest in. Even if they already own real estate themselves or have deals, that does not mean they are not interested in your deal. I have plenty of clients who are active in real estate but also invest their retirement funds on other people’s deals. This is actually a great audience because these are the people who already love real estate…they just may need to invest in your deal because the IRS does not allow them to invest their IRA money in their own deals.

      Lastly, thanks for the heads up on the trademark! I had no idea….hopefully I dont get in trouble with my title!

    • Mark,

      I opened up a SD IRA last year after achieving success in the stock market. In my case, I my issue was that I didn’t know where to find credible investments. I met my first borrower at a local REI meeting. I vetted him and gave him a favorable rate on a one year loan that he paid off 7 months later. However, the best source of leads I have had is attending my custodian’s annual conference. They have regional meet ups as well. Aside from the nice weather, educational opportunities and knowledgeable speakers, I met investors from around the country. I collected almost a hundred business cards and heard all kinds of proposals. Several of the flippers had very nice presentation booklets prepared for potential investors. I still communicate with several of them 10 months later and some of the speakers write for this site. I have done 4 deals with annual returns from 13% – 30%. The conference was totally worth the time, effort and expense.

  4. Amanda, this was a very good article for those who may not be familiar with this strategy to raise capital. I pretty much have the same concerns as Nick, Jim, and Mark and look forward to your response. Finding private money seems to be the largest piece of the puzzle that most beginner investors get side tracked by but once you overcome that hurdle then its off to the races. I recently tried a “so-called” hard money lender who I believe is only a broker but they decided not to do the deal after I got the property under contract.

  5. Hi Amanda,

    Great article! Your experience mirrors mine in that many of our syndication law firm clients report they are getting the bulk of their investment funds from people with self-directed IRAs. As for where to find such investors, I teach people to get out of the REIAS (where everyone is already or wants to be an active real estate investor), and get involved in other community organizations where you may be the only one, and where the other attendees have other full-time careers. If you want to attract high net worth investors, you need to find out where they go and become an active participant in their groups. Philanthropic or civic organizations, chambers or commerce, etc. are all great places to network and get to know people who might be interested in group real estate investments (i.e., syndication).

    Another way to meet investors, as you described in your response to Mark, is to offer generic, educational events (not infomercials about what you do), whose purpose is to teach investors about alternatives to investing in stocks, bonds and mutual funds. The purpose of these events is to establish your expertise as someone with experience in alternative investments. After the event, you have to follow up individually with the attendees to establish an appropriate relationship (which includes understanding their financial situation and suitability for what you expect to offer), and only then can you start talking to them about specific investment opportunities.

    Learning to properly solicit investors is an art which requires proper training and advice from qualified securities counsel. I suggest, as you did, that anyone who wants to learn more should seek out educators and attorneys with expertise in the field of real estate syndication.

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