How to Fund Your Passive Real Estate Investment
Investing in a real estate syndication offers investors an opportunity to own a piece of a large real estate project, with no obligation to manage the property and no personal liability. Finding funds to meet the minimum syndication investments, typically approximately $50,000 may be challenging. But, even if you don’t have a ton of money saved up to invest in a real estate syndication, there are still many ways to finance your investment. Here are just a few:
1. IRAs
Perhaps the most powerful yet least understood strategy is using your IRA to invest in real estate. By simply converting your IRA into a self-directed IRA – which can be done easily by an IRA custodian company – you are now free to invest your IRA money into a real estate syndication. It is that simple! You are no longer at the mercy of the stock market, and can instead invest in real, tangible assets in real estate. At a minimum, folks should consider this to diversify their holdings. Here is any easy checklist to use your IRA for real estate:
- Choose a self-directed IRA custodian
This custodian allows you to direct your IRA investments to whatever you want - not limiting you to stocks and mutual funds.
- Fund your IRA
Once you have a self-directed IRA custodian, you'll need to fund your account. You can do this by: (a) transferring money from an existing IRA or (b) rolling over funds from a prior employer’s 401(k) - which you are free to use without penalty - or other retirement account.
- Identify a real estate investment
With your self-directed IRA in place, you can start looking for real estate investments that meet your goals and risk tolerance. This can include investing in a real estate syndication or fund that is purchasing self-storage facilities or apartment complexes.
- Purchase the real estate investment
Once you've identified a suitable real estate investment, you simply need to complete paperwork and direct your custodian to transmit the funds.
2. Securities-Backed Lines of Credit
If you have a portfolio of stocks or mutual funds, look into a securities-backed line of credit. Your brokerage will loan you money and use your stocks and mutual funds as collateral. For example, if you have a $100,000 brokerage account, a brokerage house may loan you around $65,000, or 65% loan to value, depending on your holdings.
3. Home Equity Lines of Credit
If you do not have liquid money, lines of credit could help create it. Nowadays, many folks have equity in their primary residences, so consider a home equity line of credit. Oftentimes, the return you can obtain in a syndication far outweighs the cost, or interest rate, of the line of credit.
4. Personal/business unsecured loans
Unsecured loans are more difficult to qualify for, but some banks have programs for them. Check out whether your bank has a program or shop around.
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