How to Use Your Self-Directed IRA to Invest in Real Estate Funds or Syndications

For many real estate projects, capital is the stumbling block that shuts them down before they ever get started. This can be a good thing! After all, there are a lot of projects out there that really should not ever be done. They will not benefit the community in which they would take place nor the investors who invested their hard-earned capital in them. However, when a project “has legs,” so to speak, there is often still a need for more capital than one investor or even one institution can supply. For example, multi-family residential developments are often such a project. They are extremely expensive to develop, but the returns can be exponential. When a project is viable, but funding is needed, the sponsors and project managers may choose to use a real estate syndication to raise the rest of the funding needed.

Self-directed IRA investors find real estate funds and syndications particularly attractive because they fit the bill perfectly when it comes to keeping the deal at “arm’s length” (or even a little farther off) and tend to require very little work on the part of the investor once the initial investment is made. However, not every investment opportunity is a good one.

While there are more, here are our top 5 questions to ask before you invest in a real estate fund or syndication using your self-directed IRA:

  1. Are you qualified to invest in the Fund?

Most opportunities require investors to be either sophisticated or accredited. Find out what is required and determine if you are eligible to invest.

  1. Will they be using leverage?

Many real estate funds and syndications raise capital to get the project started, then opt to use leverage to access the remainder of the funds they need. Remember, your self-directed IRA has certain IRS rules about how you can use leverage in your investments. You must find out if the syndication will be using leverage, then consult your trusted IRA tax advisor to determine if this will have tax ramifications for your account. Otherwise, your returns could come with tax obligations you were not expecting.

  1. How is the Fund structured to protect investors?

Many self-directed investors have been investing in real estate actively and successfully for years. However, a fund or syndication is much bigger than a personal investment, so you should always know how the project will move forward in the event of a disaster, such as, a corporate meltdown, or economic disaster (2008 and Covid come to mind). Your capital should always be protected.

  1. Who gets paid (and when)?

Funds & syndications can be structured to pay in a variety of ways. You might be able to access “preferred investor” status, wherein you are paid a higher rate or paid before other investors; you might get paid before the sponsors, or you might be agreeing (in the fine print) to exorbitant management fees. Understanding how your self-directed IRA account will receive payouts, what the schedule will be for those payouts, and under what circumstances they might be delayed will be a crucial part of your decision-making.

  1. How many deals has the project manager done before?

Some self-directed IRA investors say that experience is a make-or-break requirement for them when it comes to investing in real estate syndications. This is largely a matter of personal preference, and will depend on how much experience you, personally, have in the asset class in which the syndication will operate. If you can identify a good opportunity with a new project manager, you may decide to take the risk. If you are relying mainly on the project manager and sponsors to identify good opportunities, experience will be more important.

 

HIS Capital Fund III was created for investors at any level to partner with us and take an ownership position in a strategic portfolio of performing assets. Providing a hedge against economic turbulence, our diversified investment approach combines the benefits of a high yield Growth Fund with the consistent performance and broad asset class exposure of an Income Fund.

Why Investors Love This Fund:

 

To learn more about HIS Capital Fund III contact us @ 407-347-6461 or visit https://hiscapitalgroup.com/fund3

Leave a Reply

Your email address will not be published.