Real Estate

The Secret Weapon Real Estate Investors Overlook: How a Self-Directed IRA Can Help You Beat the Competition

January 27, 2020
“The only reason they took the deal is that I was a cash buyer. Without having the ability to do a self-directed IRA investment…I would have never had the opportunity to have this much cash available for the purchase.”
Josh, Real Estate Investor, Indiana

2. “Outbid” the Competition because of Tax Savings

Investors using tax-advantaged funds from their retirement accounts can enjoy an additional 10-40-percent of flexibility than their competition that invests with taxable funds.

Where does the 10-40-percent come from? It refers to ordinary income and capital gains tax rates and the advantage IRA investors have to defer or eliminate taxes from the equation.

When the competition is running projections on their potential real estate investment, they have to factor in short- or long-term capital gains and any income tax consequences from the eventual rent or sale of the property.

Self-directed IRA investors, on the other hand, go into each investment knowing all income is returned directly to their account without being taxed. They aren’t concerned with losing up to 40-percent of their profits on the sale to capital gains.

“Before I was paying 33-percent of my ROI to the IRS. Now I keep all my profit!” says Karen, an Equity Trust client and real estate investor from Ohio.

Instead of losing out on an investment property they really want, self-directed IRA investors have the option to increase their bid and potentially “overpay” an amount investors with taxable money may not be willing to do.

As private lenders, some self-directed IRA investors report a similar benefit when competing with hard money lenders or bank financing. They can negotiate interest rates with more flexibility because of the tax-saving benefits of their retirement accounts.

3. One-Day Earnest Money and Proof of Funds – an Equity Trust Advantage

Through our online platform, myEQUITY, clients can request earnest money to be sent directly from their account by check, wire or ACH and the earnest money is processed and sent within one business day.

Equity Trust clients can also auto-generate a “Proof of Funds” letter indicating their account’s cash balance through myEQUITY. A proof of funds letter is often requested by the seller during the offer.

With these features, along with a dedicated Real Estate Investment Liaison to serve as your single-point-of-contact throughout the transaction, Equity Trust clients are positioned to act quickly on real estate investment opportunities as they arise.

As competition in the real estate market increases, more investors may look to self-directed IRAs to gain an advantage.

Dive deeper: 5 Benefits Savvy Investors are Getting from Investing in Real Estate with Retirement Accounts

This post refers generally to federal income tax brackets and short- or long-term capital gains tax rates. Every situation will vary. Please consult with a tax professional regarding your specific situation.

Case studies provided are for illustrative and educational purposes only. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Quotes and information included in the case studies and testimonials were provided by the investors and included with permission. Equity Trust Company does not independently verify all information provided by third parties.

There are several reasons to open your self-directed account at Equity Trust Company, even before you have selected an alternative investment.

  1. If you are transferring cash/assets to your account from another custodian, you should allow time for the resigning custodian to process your request and deliver the account holdings to Equity Trust.
  2. You have the ability to invest in traditional assets while you are researching other opportunities.
  3. Once you have selected an alternative investment, you will not have other actions in process that may delay the funding processing.

No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.


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