How to Invest in Private Equity Real Estate Through a Self-Directed IRA
Many accredited investors use IRA money to fund investments in private equity commercial real estate, which is classified as an “alternative investment.” You, too, can do this if your IRA is “self-directed,” meaning you can direct your IRA advisor to invest in alternative investments like Origin’s funds and deals. But not all IRAs are set up to be self-directed. Your current IRA advisor can tell you if yours is.
If you find that your IRA is not self-directed, you can elect to roll over money from your current IRA into a “self-directed” IRA with no early-withdrawal tax penalty. Midland IRA offers these “self-directed” IRAs, and several of Origin’s investors have used Midland to facilitate their investment with Origin. I spoke with Daniel Hanlon, business development manager at Midland, to go over some frequently asked questions. Here are his answers.
Q: Can you please list all the potential fees that investors could pay to Midland?
A: We charge $295 annually for our administration/custody service for 1 investment. We have one time charges of $50 for the account establishment, $95 for the initial investment purchase and $50 for subsequent calls to the same investment. Our full fee disclosure is provided as part of our application kit.
Q: Some Origin partners invest in individual deals, and their money is wired immediately. But Origin partners who invest in Funds, such as Origin Fund III and the Origin IncomePlus Fund, see their capital called periodically over the life of the Fund. Are there other vehicles to invest while these Fund investors wait for their capital calls?
A: Funds that are uninvested sit in the client’s IRA FDIC insured but are not actively invested for the account’s benefit. A client can elect to invest their funds however they so wish, though Midland will not be proactive in recommending or soliciting investments.
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Q: Do your investors need to have their entire Fund III commitment present in their Midland IRA or can they transfer it in as needed?
A: Investors are welcome to transfer funds on-demand to this IRA and to Origin’s fund. We just need a few days to complete the transfer. Most companies only take a few days.
Q: When Origin issues a Fund III capital call, is the investor or Midland contacted?
A: Origin will alert clients that a deadline is approaching so they can make accommodations to liquidate their IRA and begin the transfer process with us. Origin will also alert Midland so we can proactively assist the client in authorizing us to meet the capital call on their IRA’s behalf.
Q: How does funding work on your end? Will you be able to wire funds for each investor within seven business days of notification?
A: Yes, if a client has an account with funds in it we can process it the next business day. If it’s a new client, they would need to set up the account and transfer in funds; transfers take 5-10 days on average. Once the transfer to the account is complete, we can process an investment the next business day.