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September 8, 2021
Are you an investor looking for private capital? Here are five considerations to borrowing private money.
Are you an investor looking for private capital?
Maybe you’re a real estate investor who needs money for the next flip.
Maybe you’re running a syndication, and you’re looking to raise private capital to buy an apartment building or a commercial property.
Have you ever thought about using retirement accounts like IRAs and 401ks as your private capital source?
Here are five considerations to borrowing private money.
Did you know that retirement accounts in America account for approximately $30 trillion of U.S. wealth? Of that $30 trillion, IRAs make up close to $13 trillion, and they can all be used as a source of private capital.
How you tap into this – or how current investors have been tapping into this since 1974 – is through using self-directed IRAs.
Self-directed IRAs are a great source of private capital, but before you borrow money from someone’s retirement account, it’s important to understand a few rules, and take some things into consideration.
First, you need to understand the rules for IRAs, and specifically self-directed IRAs, which have certain rules applied to them.
One of the main rules is that there is a list of what’s called disqualified people. These people include:
This also includes the kids and grandkids in their spouses.
These are considered disqualified people, and it’s important to understand that you can’t borrow money from those people’s IRAs, but outside of that, it’s fair game.
So, if you have a brother, a sister, an aunt, an uncle, a cousin, a niece, a nephew, or just a capital partner that has money in a retirement account, most likely you can borrow money from their retirement account.
Once you’ve identified whose IRA funds you want to borrow from, your next consideration should be what type of deal can you set up to create a win-win scenario.
You need to court your borrowers, understand them, or your private capital investors, and make sure that you create a win-win scenario with them.
You could do all sorts of things with somebody’s retirement account.
There are all sorts of different creative things you can do when you use private money. Just make sure you understand that need to create win-win scenarios between yourself and them.
The third consideration is that you understand the process. Make it smooth and painless on your capital partners.
Only about 5% of Americans even understand that they can use their IRAs in this fashion.
Most people don’t know they can use their IRAs to be a capital source – or be a lender – to somebody like yourself, who might be a real estate investor.
Most people think they can only invest in stocks, bonds, and mutual funds. Before you ask someone to set up a self-directed IRA so you can borrow their money, maybe you should have a self-directed IRA.
Now that you understand how the process goes, and the timelines, it’s time to understand the paperwork involved.
What’ll you learn quickly is that borrowing private money from someone’s self-directed IRA can be done in as little as 24 to 48 hours.
With that said, it always helps that you understand the process before you look for private capital.
The fourth consideration is that you protect your lender’s interest at all costs – even if it means you lose money on the deal.
We say this because many people have been using private capital from IRA lenders and IRA capital partners for decades.
The ones that last the longest are the ones who make sure that they pay their lenders on time. And they actually pay them even if the deal goes bad.
If a deal goes bad, and you leave that loss on your lender or your capital partner, you may never have a capital partner again.
However, if you do right by them and protect their interests – even if it means you have to dip in your own back pocket to make them whole – you’ll find that your career in borrowing private money goes on a lot longer.
The fifth – and most important – consideration is to follow NuView Trust. Make sure that you stay connected with us for more continuing education.
This way, you understand how self-directed IRAs work – not only for yourself – but how you can take part in the other side of self-driven IRAs, which is borrowing private money from OPI – other people’s IRAs (… the $13 trillion that sits in there untapped).
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