Self-directed IRAs have experienced a surge in popularity in recent years. These programs give investors more flexibility over how their IRA accounts are invested, increasing the potential for returns through assets like real estate. They also help investors diversify their portfolios, putting them in a better position for future wealth building. Brokers and lending partners can expand their product offerings by adding self-directed IRA loans from RCN Capital, giving their clients more options and more ways to finance their real estate goals.
Here’s what you need to know about self-directed IRA loans as a real estate broker, and how they can help supercharge your clients’ investment portfolios.
Self-directed IRAs differ from conventional IRA structures because investors have greater control over their retirement funds and how they are invested. One of the key differences is that investors can acquire real estate with the funds, generally working with a specialized custodian that administers the account to do so. They still follow the same contribution and tax rules as Traditional/Roth IRAs, and there are some guidelines to follow surrounding how the funds can be invested, but the main benefit is the added flexibility they provide and the potential for greater returns.
For investors, this can be a game changer. Instead of keeping retirement funds tied solely to the stock market, investors can use self-directed IRAs to purchase investment properties, diversify their portfolios, or invest in other real estate backed opportunities, all within a tax advantaged structure. For lending partners, it gives you another way to provide financing for your clients’ real estate purchases and helps them build a stronger portfolio in the process.
Here are some of the most common ways investors have been utilizing self-directed IRAs in real estate:
As with any loan program, it’s important to understand the nuances and the limitations of self-directed IRAs before recommending them to clients. First, take time to conduct research on prohibited transactions, common use cases, necessary documentation, and best practices for structuring deals. Next, partner with a trusted lender that has experience in real estate and offers these specific programs (bonus points if they offer their own training on SD IRAs). Finally, start identifying borrowers who may benefit from a self-directed IRA strategy, and coordinate with your chosen lender and their IRA custodian to help them make smarter acquisitions that will maximize returns.
Self-directed IRAs provide benefits not only to the investor, but also to the brokers who provide their clients with these programs. To start, investors can achieve better returns by unlocking dormant capital that is sitting in their IRA accounts and moving it to higher-return investments. Diversifying the account can also make it more resistant to downturns in any given market, all while remaining in a tax advantaged structure.
From a lending partner’s perspective, this helps you strengthen the broker-client relationship through offering strategic guidance and helping these clients achieve their investment goals. It also helps you stand out as a knowledgeable resource not only in real estate investing, but in wealth-building, opening the door to repeat and referral business.
Self-directed IRA programs can be a powerful tool for investors, but there are still challenges you and your clients may face when utilizing them. Understanding the limitations of these programs is key to setting realistic expectations for clients and helping them identify which investments are and are not eligible. Also, unlike traditional real estate transactions, deals involving self‑directed IRAs require coordination with an IRA custodian. This can result in longer timelines, especially for investors who are unfamiliar with the process, and will require open communication from the investor, broker, and custodian to keep deals on track. While self‑directed IRAs add complexity, they also open the door to deals that might not otherwise be possible. Lending partners play a key role in helping their clients understand these programs, and in getting the most out of them.
In order to maximize the returns on your clients’ investments, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer self-directed IRA programs to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.