Use Tax Free Money to Hook Private Investors

It has been said that there are only two sure things in life: death and taxes.

This is unacceptable.

Since it doesn't do us much good to 'fear the reaper' (sorry Blue Oyster Cult - I had to borrow it) let's focus on the other one - taxes

If there's one thing better than making money, it's keeping it. Taxes have been a part of life for the average American since 1913. Here is what the first tax form looked like:

I guess folks didn't have it any better back in the day either. On more than one occasion, I've tried to navigate this thing and...let's just say I'm glad that I have a good accountant on my team!

Even though taxes have been a part of living and working in American for almost 100 years, there are some things you can do to minimize or eliminate your tax burden. And, perhaps just as important for real estate investors, you can use the tax laws to your advantage in a big way by using something called.....

a Self-directed ROTH IRA.

Self-directed IRAs can be great tools to use for your own personal retirement wealth creation. You can buy and hold and even flip houses in your IRA. Pretty cool stuff. And...

Secondly, self-directed IRAs are tremendously powerful tools for bringing in private money. Most people don't know that they can invest in real estate using an IRA (which can provide tax-deferred or tax free gains on investment). When they find out, it's like a whole new world has been opened up to them. They might even realize that their financial planner hasn't been giving them a complete menu of options to choose from.

Most IRAs are set up as 'tax deferred' - which means that the money that goes into the account can grow and compound each year without being taxed. Taxes are paid when the funds are withdrawn from the account. These are called 'traditional IRAs'. Traditional IRAs are great, but for my money there's an even better choice out there: ROTH IRAs

ROTH IRAs allow for tax free withdrawals of the investment and any gains (which could be as big as you want with real estate investing) provided the account has been open for at least 5 years and the account holder is over the age of 59 1/2. The money invested in a ROTH is 'after-tax' which means that you cannot get any kind of tax benefit when you make the investment. But...tax free gains! C'mon - this is good stuff!

One thing to consider with ROTH IRAs is that the contributions may be limited for high-income earning households. Your private investors will have to work with their tax advisor on that part. But, for many private investors, the thought of growing their money with you tax free is a great option.

Part of bringing in private money is offering something that hits people at multiple levels. Keep in mind that people buy on emotion and then justify with logic. For instance, consider the Mercedes Benz buyer. The emotional appeal of a feeling of achievement, status and prestige is primary and the logic of precision engineering is secondary. With private investors, avoiding the gut-wrenching torment of the stock market and keeping more of the money they make can be great hooks to get them coming to you with open wallets.

If you neglect to mention self-directed IRAs to potential investors, you're greatly limiting the money you will raise. I would even go so far as to say you should lead with this approach in many cases.

Using the tax free investment benefit of self-directed ROTH IRAs is a great hook to raise capital. I suggest implementing it yesterday.