A Different Kind of Leverage: Partnerships & Private Lending

When a real estate investor hears the word “leverage”, they oftentimes think of traditional bank loans or mortgages. What many don’t realize, is that they can also leverage their investments by using partnerships, other people’s money, or even other people’s investment experience.

You might be in a position where you lack buying power for an investment property and don’t want to take out a loan. Maybe you want to take out a loan, but you’ve hit the limit on the number of conventional loans you can get. In either scenario, there are creative methods at your disposal to make your investment opportunity a roaring success!

The easiest way to increase buying power for an investment property is to partner with another individual or another entity. If you’re lacking cash to buy, you have a few options when it comes to partnership opportunities.

Most simply, you could work with a money partner (whether it’s a family member, friend, or general investor), or you could partner with your own IRA or another person’s IRA (however, it must be a Self-Directed IRA- something provided by a custodian such as NuView Trust Company).

There is approximately $35 trillion dollars in retirement accounts across the United States. I’d argue that many of those account holders are either totally unaware that their retirement accounts can be invested in tangible assets like real estate, or they are itching to leave the Stock Market behind but don’t have the same access to deals that YOU might have.

Beyond directly partnering on a real estate investment, you can also get private loans from other people’s retirement accounts. Through promissory notes secured by real estate, you can source buying power from entities like a NuView Self-Directed IRA.

You, or an attorney, would draft the Note with terms agreed upon with the lender, and you would pay installments directly back to their SDIRA. On the flip-side, you might want to passively invest in real estate, take advantage of another real estate investor’s knowledge, and lend from your own SDIRA (tax-deferred, or even tax-FREE).

There is an opportunity here for you to leverage other people’s retirement accounts or someone else’s investing knowledge to make returns that could eclipse anything the stock market could provide.

When considering partnerships and private lending with or from a Self-Directed IRA, there are some considerations to make before getting started:
1) If you partner with a NuView SDIRA owned by your lineal ascendants or descendants, all expenses and revenue generated must flow pro-rata to and from each invested entity. Pro-rata = the same percentage basis as the original investment.
2) There are certain people that are disqualified from lending you money from their SDIRA. These people include the same lineal ascendants and descendants mentioned above.

To circle back, there is approximately $35 trillion dollars sitting in retirement accounts across the United States. I think it’s fair to say that some of those retirement account owners may want to diversify beyond stocks, mutual funds, and bonds.

*For more information regarding rules surrounding SDIRA investments, please see IRS Code 4975.

Alex Sylvia, IRA Specialist