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Investor Insights Blog|Passive Investment Opportunities for Your Retirement Account

SDIRA Concepts

Passive Investment Opportunities for Your Retirement Account

investor researching passive income opportunities

Considering the volatility of the stock market and the amount of small businesses that need funding to stay afloat, many investors want to put their money to work in opportunities they know can create a positive impact, while simultaneously growing their wealth.

Although some investors may find success in the traditional stock market, many investors often wonder, “How do I find investment opportunities outside of Wall Street?”

You have more investment options if you use a retirement account that’s considered “self-directed.” A self-directed account allows you to invest in a wide array of assets, not limiting you to traditional investments, although it’s still an option.

At Equity Trust, a lot of our clients tell us “I wanted to invest in something I could understand,” or “I was tired of seeing my account value drop every time the market fell.”

In addition to seeking investment freedom and investing in your area of expertise, many of our clients utilize strategies that provide them with passive income. Passive income investing is a strategy for individuals who want a steady stream of income either in retirement or in addition to income he/she is actively earning, which requires little to no effort to maintain.

You might be wondering, “What are some examples of passive income investments for retirement?” We’ve outlined some common passive income investing strategies to help you get started.

Finding Passive Investment Opportunities

Crowdfunding

Crowdfunding is an investing strategy in which a group of individuals, businesses, or organizations (a “crowd”), combine funds for a project or business opportunity. It’s particularly popular for entrepreneurs or startups to raise capital in order to get their business off the ground.

The TV show Shark Tank is an example of crowdfunding. In fact, according to INC.com, “Shark Tank’s Kevin O’Leary wants startups needing capital during the coronavirus pandemic to know that they have a model to turn to: equity crowdfunding.”

Crowdfunding sites provide investors with opportunities to diversify into a wider array of assets than the traditional stock market, including limited partnerships, LLCs, private debt, and more.

Many investors use crowdfunding websites to find these specific opportunities as an investing strategy. With a self-directed account, you can use your self-directed IRA, self-directed Roth IRA, or other tax-advantaged account to invest in various crowdfunding opportunities.

Real Estate Crowdfunding

Real estate crowdfunding is a common way for investors to buy into a property, without having to purchase it outright entirely with their own funds. This means as an investor, you own a portion of the property and any profits generated return proportionally to you.

Real estate crowdfunding can be a beneficial way to diversify your portfolio while deferring risk. If you’re looking to get involved with real estate investing but are looking for a more hands-off way to do so, real estate crowdfunding could be an option for you.

Similar to crowdfunding for a business, many investors use real estate crowdfunding platforms across the internet to locate potential investments. There are even groups on social media, like Facebook, that are specifically dedicated to real estate crowdfunding.

For example, Equity Trust client, Mark, used his Health Savings Account (HSA) to invest in an equity share in an apartment complex through a commercial real estate investing platform. In two years, he grew his HSA from $20,000 to $38,000, tax-free.

Read Mark’s Real Estate Crowdfunding Story

Promissory Note Investing

A promissory note is a written promise of payment from one person or organization to another. Promissory notes contain terms including how much is being borrowed and the frequency and amount of payments.

15-Minute Guide to Private Entity Investing with a Self-Directed IRA

I don’t know where else I can get 10-percent ROI with the level of risk I’m getting.

Guy, Equity Trust Client

Some examples include mortgage notes, car loans, or rehab/construction loans.

Promissory notes allow individuals or organizations to receive funds for a project or business without necessarily having to go through a bank. Investors may find promissory notes to be a beneficial investment as a more passive strategy.

For example, Equity Trust client, Guy, wanted a more hands-off approach to investing and found a hard money lending opportunity online.

Read Guy’s Note Investing Story

Notes can be structured in several ways:

1. Secured

Secured notes have an asset pledged as collateral, and collateral can be claimed to recoup the money borrowed, in case of a default.

Security for the loan can be real property, mobile homes, corporate stock, etc..

2. Unsecured

If a note is unsecured, there is no collateral to repossess in the event of a default.

3. Draw Notes

Provides the borrower funds through multiple payments, also known as draws. Draw notes may be secured or unsecured. Also commonly known as construction loans.

Peer-to-Peer Lending (P2P Lending)

Peer-to-peer lending is a way for investors to provide personal loans to another individual, unsecured. It can also be called “social lending” or “crowd lending.”

There are various P2P lending websites that connect lenders directly to borrowers, like crowdfunding, and investors can choose to invest as little or as much money as they want.

Rental Properties

Possibly one of the most popular passive income investments is real estate because it provides investors with extra cash flow. Rental properties specifically offer investors passive income with a monthly fixed amount of money.

As a general example, if a real estate investor rents out a single-family home for $1,000, he/she can guarantee they will receive that $1,000 each month for the duration of the lease. Different variables may come into play in these situations and it’s important to perform due diligence on your investments and vet out any potential tenants before choosing who will be your renter.

Why Utilize a Self-Directed IRA for a Passive Income Investment Opportunity?

A self-directed IRA, Roth IRA, HSA, CESA, or small business plan offers the opportunity to invest in a broader spectrum of investments, such as the passive income investments listed above, while keeping the investments in a tax-advantaged environment.

1

How do I set up a self-directed retirement account?

To set up a self-directed retirement account with Equity Trust visit myEQUITY and start the process today. You can also visit How to Get Started for more information. Or simply schedule a free, one-on-one consultation with an Equity Trust Senior Account Executive.

2

What are the advantages of opening a self-directed IRA?

Some advantages of self-directed IRAs include:

  • Tax-deferred or tax-free profits
  • Investment diversity (it is possible to invest in an array of assets in your retirement account)
  • Potentially building wealth for future beneficiaries
3

How does the transfer process work?

After you open your account with Equity Trust, the first step of transferring your funds involves contacting your current custodian regarding the transfer. If you don’t have that information, an Equity Trust specialist can contact your current custodian while you are on the line.

If the current custodian requires Equity Trust to initiate the transfer process, you must complete and submit an Equity Trust Transfer From along with a recent statement from your current custodian. The Transfer Form can be submitted when opening your account at Equity Trust, or any time thereafter. You must include a Medallion Signature Guarantee Stamp. Once the Transfer Form has been received, Equity Trust will sign and submit the form to the transferring custodian.

If you decide to utilize your self-directed account to invest in a crowdfunding, promissory note, or peer-to-peer lending opportunity, due diligence is necessary, as it is with any investment.

Equity Trust Client Bud discusses his passive investing in his IRA


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