How to Tap into the Private Money Gold Mine
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?
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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