Savvy investors looking to diversify their portfolios can try to unlock the potential of a self-directed IRA (Individual Retirement Account) to invest in real estate. Done properly, this approach could be a game-changer.

With a self-directed IRA, you have the freedom to invest in a wide range of assets, including real estate. However, navigating this terrain is easier said than done. It requires partnering with the right self-directed IRA (SDIRA) companies to ensure a seamless and compliant experience.

Selecting the ideal custodian or facilitator is crucial. Because not all IRA custodians allow for self-directed investments, it is important to find one that can help you accomplish your financial goals.

In this article, we will discuss how to choose a self-directed IRA company for your real estate investments, and what to look for in a company.

What is a Self-Directed IRA?

Before we talk about SDIRA companies, let’s have an overview of what a self-directed IRA is and how it works. A self-directed IRA is a type of retirement account that allows individuals to have more control and flexibility over their investment choices compared to traditional IRAs.

With a self-directed IRA, you have the ability to invest in a broader range of assets beyond the typical stocks, bonds, and mutual funds that are offered by conventional IRAs. Although a custodian administers the account, it is still directly managed by the account holder. This is why it is called self-directed. [1]

Some of the alternative investment options in a self-directed IRA include real estate, private equity, precious metals, etc.

Self-directed IRAs are best suited for experienced investors who understand alternative investments and want to diversify in a tax-advantaged account. [1]

While these expanded investment opportunities can potentially offer greater diversification and higher returns, they also come with added responsibility and risk. It’s crucial to understand the rules and regulations surrounding these investments to ensure compliance with IRS guidelines.

These accounts therefore require due diligence and understanding of the potential risks involved in less conventional investment choices.

Benefits of a Self-Directed IRA

With a self-directed IRA, you are able to own non-traditional assets such as cryptocurrency, previous metals, startup equities, tax liens, foreign currencies, and even real estate. [2]

Investors will usually go for a self-directed IRA if they want to go beyond the usual investment options like stocks, bonds, and mutual funds. Self-directed IRAs allow for a broader range of investments, making it perfect for portfolio diversification. Diversification can potentially reduce risk by not having all of your money in one asset. It also helps enhance potential returns. [2]

Investors also have more control over their investment decisions. They can choose assets they understand and believe in, potentially leading to a more customized portfolio that suits their personal needs and financial goals.

Self-directed IRAs even maintain the tax benefits of traditional IRAs, such as tax-deferred or tax-free growth, depending on whether it’s a traditional or Roth IRA. This can allow for compound growth without immediate tax implications.

However, it’s crucial to recognize that no investment is without risk. Even self-directed IRAs come with certain considerations and potential drawbacks.

For example, alternative investments can be riskier than traditional assets. Lack of liquidity, market volatility, and the complexity of certain investments can lead to higher risk exposure. Self-directed IRAs may also have higher administrative and transaction fees compared to traditional IRAs, depending on the custodian you are working with. [2]

But one of the biggest drawbacks of self-directed IRAs is the fact that they are quite complex. Managing alternative investments might demand specialized knowledge or the help of professionals. Conducting thorough due diligence is essential to mitigate risks.

Because there are so many regulations in place, it is easy to get in trouble with the IRS if you are not experienced enough with self-directed IRAs or you are unfamiliar with the rules. Engaging in prohibited transactions or failing to follow guidelines can result in penalties or disqualification of the IRA’s tax advantages. [2]

Before opting for a self-directed IRA, investors should carefully evaluate their risk tolerance and long-term financial goals. Consulting with financial advisors or tax professionals is advisable to ensure that a self-directed IRA aligns with their investment strategy.

How to Choose the Right Self-Directed IRA Company

Choosing the right self-directed IRA company for real estate investments is a necessary step if you want to avoid the pitfalls of this investment approach. This involves careful consideration of several factors.

Look for companies that specialize in self-directed IRAs for real estate. Check their reputation, years in business, client reviews, and Better Business Bureau ratings to gauge their credibility and reliability.

Make sure that the IRA custodian you choose allows the type of real estate investments you’re interested in. Some companies might limit certain types of properties or investment structures. The greater the selection of investment options, the better.

The best custodians offer low fees. Fees may come in many shapes and sizes, so remember that different companies may charge different types of fees. For example, maintenance fees are not a given. [3]

Investors must understand the company’s fee structure. Some companies charge account setup fees, transaction fees, asset holding fees, etc. Compare fee schedules among different providers to find the most cost-effective option that aligns with your investment strategy.

Customer service is also important. Accessibility, responsiveness, and expertise in handling real estate-related queries are crucial. The availability of knowledgeable specialists who can answer all your questions on time is essential. It may be frustrating to manage a self-directed IRA while receiving confusing answers from your custodian. [3]

Evaluate how easy it is to initiate and manage transactions with them. If they offer a user-friendly online platform or portal, it can make a significant difference in your investment experience.

The company should have an easy to use website where you can monitor your investments and efficiently make transactions. It should allow you to navigate the custodian’s site extensively enough to determine if it’s a comfortable fit for you—even before committing to an investment. [3]

Ideally, you want to look for a custodian with a solid track record of holding alternative assets, particularly real estate, within IRAs. Check if they have experience handling the complexities of real estate investments within retirement accounts. Also check to make sure the company complies with IRS regulations and provides necessary reporting for your IRA investments. They should offer accurate and timely reporting to help you maintain compliance.

A self-directed IRA can be a great option for investors looking to diversify their investment portfolio with alternative investments.

When choosing a self-directed IRA company, be sure to consider factors such as investment options, fees, reputation, and customer service. When investing in real estate with a self-directed IRA, be sure to do your research, understand the rules and regulations, and consider the risks.

With the right self-directed IRA company and investment strategy, you can potentially increase your retirement savings and achieve your financial goals.

What is Multifamily Syndication?

Investing in real estate through a self-directed IRA is complicated. While you may enjoy high potential returns, it comes with a lot of risks and requires a lot of due diligence. There are alternatives that still require due diligence, but are otherwise passive investments in real estate.

If you want to enjoy high potential returns without going through the same amount of headaches, the best alternative is multifamily syndication.

In real estate, a syndication deal is a type of investment wherein multiple investors pool their resources together to purchase a single multifamily property. While this can be done with any type of real estate, multifamily syndication is the most popular due to the strong and consistent cash flow of large multifamily properties.

Multifamily properties like apartment complexes are also generally more expensive and therefore more difficult to obtain for a lone investor. Multifamily syndication makes it possible to participate in large real estate deals without putting in as much capital or taking on all of the risks by yourself.

Through multifamily syndication, real estate investors can purchase larger apartment communities than they would normally be able to. [4]

The two main parties involved in a syndication deal are the syndicator and the passive investors.

The syndicator, also known as the sponsor, serves as the general partner (GP). It is their duty to locate the investment property, raise capital, and provide disbursements to the passive investors. The GP takes on an active role in the investment, putting the deal together and looking for investors who will participate. Once the deal is in place, the syndicator will also handle property management. [4]

Syndicators typically have expertise in real estate and a track record of successful investments.

On the other hand, passive investors have limited responsibilities in the syndication deal. They serve as the limited partners (LPs), and their only job is to provide most of the capital needed to purchase the property by investing their money.

LPs are not legally or financially liable for anything involved with the syndication deal. In fact, they only face the loss of their initial investment should anything go wrong. [4]

Most real estate syndication deals are exclusive to accredited investors. These are investors or entities that have a financial safety net in case an investment does not work out. This means they meet specific financial criteria set by the Securities and Exchange Commission (SEC) that allows them to participate in private investment opportunities and unregistered securities.

Because of their financial sophistication and investing experience, they can weigh the risks of these investments and make the right decisions with their funds. This is why they are allowed to join investments like multifamily syndications that are not available to the general public.

Every deal is different. They may vary in terms of profit split, but investors get a share of the property’s monthly cash flow, which it generates through rental income. Since apartment communities have several units and tenants, they can generate a strong and consistent cash flow. Depending on the deal structure, investors may also get a share of the equity upon the property’s resale. The exact terms will be detailed in the private placement memorandum (PPM) before investors decide to participate.

Because the syndicator is responsible for managing the property and handling its day-to-day operations, this is a true passive investment for accredited investors. The syndicator handles everything from property maintenance to tenant relations to rent collection.

This is why your choice of syndicator also matters. You still need to conduct due diligence, not only on the property itself but also on the track record and expertise of the syndicator before committing your funds.

Investing WIth BAM Capital Through Self-Directed IRA Retirement Accounts

Nearly every retirement account product including IRA 401k and Roth IRA can actually be self-directed. If you’re looking for help in this area, BAM Capital can’t offer advice, but can certainly help point you in the right direction to unlocking your retirement funds and using them to invest in apartments.

Work With BAM Capital for the Best Multifamily Syndication Deals in the Midwest

When it comes to real estate investments, multifamily syndication is one of the most lucrative. It is also one of the most convenient investment strategies for accredited investors since it’s a passive investment. You can participate in large real estate deals without the usual headaches of being a landlord.

Investors who are looking for a syndicator with a proven track record and a strong Midwest focus should work with BAM Capital.

BAM Capital is an Indianapolis-based syndicator that has cemented itself as an industry leader thanks to their track record of excellence. This syndicator is trusted by investors because of their award-winning investment strategy that creates forced appreciation while mitigating investor risk. [5]

BAM Capital prioritizes Class A, A-, and B++ properties with proven upside potential and in-place cash flow. It is also a vertically-integrated company, meaning they can guide you through every step of the syndication process from locating high quality multifamily properties to renovating and managing them. In fact, they now have over $700 million AUM and 5,000+ units. [5]

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.



[1]: https://www.investopedia.com/terms/s/self-directed-ira.asp

[2]: https://www.forbes.com/advisor/retirement/self-directed-ira/

[3]: https://www.investopedia.com/articles/personal-finance/091015/retirement-tips-how-choose-best-ira-custodian.asp

[4]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[5]: https://capital.thebamcompanies.com/