What is private equity investing in real estate? Private equity investing in real estate is a strategy in which an investor uses crowdfunding to invest in real estate with personal funds or a self-directed retirement account. Private equity in real estate can be used for fractional ownership or possible liability protection. In other words, it can allow self-directed investors to dabble in the real estate market without purchasing entire properties. Real estate crowdfunding is a popular way to get the benefits of owning real estate while tailoring that ownership to individual investment goals.
In the past, using private equity to invest in real estate tended to be a bit of a private club. Before Title III of the Jobs Act went into effect, only accredited investors could participate in crowdfinancing (or crowdfunding) to purchase real estate. Accredited investors hold higher-than-average net assets can are therefore better positioned to make larger investments. Smaller, non-accredited investors (and their self-directed IRAs) were on the outside looking in for the most part.
Title III now enables certain non-accredited investors to use private equity to invest in real estate on the crowdfunding front. Crowdfunding pools money from a group of investors via online platforms and social media outlets. It also provides asset providers and larger investment managers with access to money outside of the traditional debt and equity products that are funded primarily by banks and brokerage houses. Online crowdfunding platforms allow investors to pool their money to make pre-vetted real estate investments for reasonable minimum investments, all without the headache of managing the property itself.
Savvy investors who are looking for a way to maximize their retirement savings while investing private equity in real estate can utilize their self-directed IRAs to receive tax-advantaged returns on their investment properties. Both pre-tax accounts like Traditional IRAs and post-tax accounts like Roth IRAs can help real estate investors to vamp up their returns and save for retirement.
With new technology platforms that attract both investors and asset providers, using a self-directed IRA to invest private equity in real estate is just as simple as using personal funds. However, only self-directed IRAs offer investors unique tax-advantages on their real estate returns.