What is private equity
investing in real estate
? Private equity investing in real estate is a strategy in which an investor uses crowdfunding to invest in real estate with personal funds or a self-directed retirement account. Private equity in real estate can be used for fractional ownership, possible liability protection, ownership of your IRA and more. Real estate crowdfunding is a popular way to get the benefits of owning real estate, while tailoring that ownership to individual investment goals.
In the past, using private equity to invest in real estate tended to be a bit of a private club. Before Title III of the Jobs Act went into effect earlier this year, only accredited investors could participate in crowdfinancing (or crowdfunding) to purchase real estate. Accredited investors were defined as those who had a net worth of at least $1 million, or an annual salary of at least $200,000 if single and $300,000 if a couple (this net worth calculation excludes investors’ homes).
Title III now enables certain non-accredited investors to use private equity to invest in real estate on the crowdfunding front. Investors who make over $100k per year can invest $2,000 (or 5% of their annual income; whichever is greater). Investors who make less than $100k per year can invest up to 10% of their annual income. Startups can raise up to $1 million in a 12 month period.
Crowdfunding pools money from a group of investors via online platforms and social media outlets. It also provides investors with access to money outside of the traditional debt and equity products that are funded primarily by banks and brokerage houses.
Online crowdfunding platforms allow investors to pool their money to make pre-vetted real estate investments for as little as $5,000, without the headache of managing the property. Unlike equity investments that may pay off five or ten years down the road, real estate generates a steady income stream almost immediately (Forbes).
Savvy investors who are looking for a way to maximize their retirement savings while investing private equity in real estate can utilize their self-directed IRA to receive tax-advantaged returns on their investment properties. Both pre-tax accounts like Traditional IRAs and post-tax accounts like Roth IRAs can allow real estate investors to vamp up their returns and save exponentially for retirement.
With new technology platforms that attract both investors and places to invest, using a self-directed IRA to invest private equity in real estate is just as simple as using personal funds. However, only self-directed IRAs offer investors unique tax-advantages on their real estate returns.
To learn more about self-directed IRAs and investing private equity in real estate, feel free to call New Direction IRA