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When it comes to raising capital for real estate syndications, many sponsors overlook a powerful and often untapped resource: Self-Directed Investment Retirement Accounts (SDIRAs).  If you're not familiar with SDIRAs, let me explain them simply. Traditional IRAs limit investors to stocks and bonds. However, SDIRAs allow individuals to diversify into alternative assets, like real estate syndications.

So, with more investors looking to take control of their retirement savings and invest in tangible assets, SDIRAs are gaining serious traction. It's not just the ability to get higher returns that attracts investors. It's also the tax advantages, diversification, and ease of investing that entice them.  

That's why tapping into SDIRA funds to raise capital can be just the strategy you need for your next deal. In this guide, I'll walk you through how SDIRAs work, how to attract these investors, and why they should be part of your syndication strategy.

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How to Direct SDIRA Funds to Your Real Estate

Syndication: 4 Key Steps

Now you know that SDIRAs are a popular way to raise capital, let me explain how you can direct the funds from SDIRAs to your syndication.

Step 1: Educate Retirement Account Holders on Setting-up an SDIRA

While many retirement account holders know that they can invest in real estate through their retirement accounts, they do not know how to set up an SDIRA. This is where your expertise will come in.

Take the initiative to educate them through webinars, guides, or one-on-one consultations. Explain that setting up an SDIRA involves selecting a custodian specializing in alternative investments, rolling over or transferring funds from their existing retirement accounts, and choosing the investment—like your syndication.

Clear, actionable content is key to empowering investors with the confidence to move forward. Providing them step-by-step instructions or partnering with a knowledgeable custodian can make this process easier.

Step 2: Role of Custodians and Choosing One

Custodians are responsible for holding and administering the retirement assets. However, they don't give investment advice. As a sponsor, you should be familiar with how custodians operate and guide investors in choosing one that fits their needs.

Building relationships with reputable custodians who understand real estate syndications is important. This partnership can help streamline the entire process, making it easier for SDIRA investors to participate in your deal. 

Be prepared to offer a list of trusted custodians specializing in real estate syndications to ensure smooth transactions. Better yet, partner with a reputable custodian and create an integrated solution for your investors. 

For example, SponsorCloud has partnered with Equity Trust Company, an industry-leading custodian for SDIRAs. By integrating SponsorCloud's fund management platform with Equity Trust Company, we have created a solution that helps sponsors raise capital, streamline fund management, automate distributions, and communicate with investors.

Step 3: Funds Allotment: How they Are Transferred and Managed within a Syndication

Once the SDIRA is set up and the investor is ready to commit, the funds are transferred from the SDIRA to the syndication. The investor's custodian will handle the paperwork and release the funds into your real estate deal, but it's essential to guide the investor through the process.

The transferred funds will be managed as part of the syndication, with all returns going back into the investor's SDIRA account. As the sponsor, it's critical to maintain transparent communication with both the investor and the custodian throughout the investment lifecycle. This ensures compliance with regulations and provides clear reporting on performance.

Step 4: Understanding the Compliance and Regulatory Factors

One of the biggest concerns for SDIRA investors is ensuring their investment complies with IRS rules. There are strict regulations governing SDIRA transactions, including prohibitions on self-dealing (i.e., investors cannot personally benefit from the property or invest in deals involving close family members). You must ensure your syndication avoids these prohibited transactions to maintain the tax-advantaged status of the SDIRA.

Additionally, certain investments may trigger Unrelated Business Income Tax (UBIT), especially if your syndication uses leverage (debt). Educating your investors on these potential tax implications and consulting with legal or tax professionals will ensure your syndication stays compliant. It will also protect the interests of you and your SDIRA investors.

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Benefits of Using SDIRAs for Your Syndication Deal

Tap Into a Diverse, Untapped Capital Source

One of the biggest advantages of leveraging SDIRAs is the access to a diverse and largely untapped pool of capital. The total U.S. retirement assets were calculated to be around $40 trillion dollars in Q1 of 2024. [Source]

This means that, with SDIRAs, you have an incredible opportunity to tap into the trillion dollars of retirement funds and assets. Also, today, more and more IRA holders are seeking alternatives beyond traditional assets. 

For sponsors, this presents a unique opportunity to engage investors who are actively looking to diversify their portfolios with real estate, a space they might not otherwise have considered.

Attract Retirees Seeking Long-Term, Stable Investments

SDIRA investors are typically in this for the long haul, which aligns perfectly with real estate syndications. Many retirees or those nearing retirement seek stable, long-term income streams to supplement their retirement savings. Real estate syndications can provide just that—consistent cash flow over several years, backed by tangible assets. This makes SDIRA investors ideal partners for syndicators, as their financial goals naturally align with the structure and timeline of your deals.

Align Investment Opportunities With Retirement Goals

With an SDIRA, investors have the freedom to put their retirement funds into non-traditional assets. Real estate syndications offer them a rare opportunity to participate in something tangible, stable, and potentially high-yielding. As a sponsor, you can offer deals that are not only lucrative but also provide long-term wealth-building potential. This aligns directly with what SDIRA holders want for their retirement funds. This creates a win-win situation for both you and your investors!

Lower Capital-Raising Competition Compared to Traditional Funding

The SDIRA space is still relatively underutilized by many sponsors. This means there's less competition for raising capital from this group of investors. Unlike traditional funding sources, where you're competing against countless other syndicators, SDIRA investors are often overlooked. 

This reduced competition can give you a strategic advantage. It allows you to secure capital from investors eager to diversify into real estate while benefiting from the tax advantages SDIRAs offer. Additionally, raising capital from SDIRAs can be quicker compared to raising other sources, that is, if you know how to engage with retirement account holders.

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Strategies to Attract SDIRA Investors

Educate Investors on SDIRA Advantages

Education is key when it comes to SDIRA investors. Many potential investors may not be fully aware of the opportunities SDIRAs offer, particularly in real estate syndications. As a sponsor, one of the most effective ways to engage them is by creating educational content that breaks down how SDIRAs work, their tax benefits, and why real estate is such a smart investment choice within an SDIRA.

You can start with blog posts, explainer videos, or a series of educational webinars and seminars. These resources should be designed to answer common questions and ease any concerns investors may have about alternative investments in their retirement portfolios. When you position yourself as an educator, you also build trust with potential investors, making them more likely to participate in your syndication.

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Partner with SDIRA Custodians to Facilitate Easier Transactions

When it comes to using SDIRAs to fund your syndication, you have to ensure the process is seamless for your investors. They don’t want to be burdened with complex processes and neither do you. 

This is where building strong partnerships with SDIRA custodians can be a game-changer. Custodians manage the administrative side of SDIRAs, including compliance and fund transfers, so you don't have to. You can simply direct the funds from the IRA holder's account to your syndication under the custodian's supervision with no complex processes involved for the investors. 

By partnering with well-established SDIRA custodians, you can streamline the investment process for your investors. This will make it easier and less intimidating for them to participate in your syndications. However, ensure that you are able to communicate this easy investing process to your investors. Have proper marketing collateral ready to communicate the advantages, investing process, and distribution process to your investors. 

This is one of the most effective strategies for attracting SDIRA investors.

Tailor Your Marketing to Highlight REI Benefits via SDIRAs

Effective marketing is all about knowing your audience. When reaching out to SDIRA investors, your messaging should focus on the unique benefits of real estate syndications within their retirement accounts. Use email marketing campaigns to highlight the long-term growth potential and tax advantages of investing in real estate through an SDIRA.

Social media platforms can also be powerful tools for spreading awareness. Share posts and articles that explain the ease of investing with SDIRAs and the potential returns investors can expect. Be sure to target your marketing to the right demographic—those interested in securing their retirement with steady, passive income from real estate. Tailored, well-crafted messages can make all the difference in converting interest into action.

Highlight Case Studies Showing High Returns from SDIRA-Backed RE Syndications

Nothing builds confidence quite like seeing tangible success stories. Showcase examples of investors who have used their SDIRAs to participate in your syndications and have seen substantial returns. These case studies should highlight the journey of these investors—from setting up their SDIRA to achieving financial success through their real estate investment.

By sharing real-world examples of how SDIRA investors have benefited from your syndications, you provide prospective investors with proof that these opportunities are viable and profitable.

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Wrapping Up!

The rise of SDIRAs has opened new doors for sponsors seeking to raise capital for real estate syndications. By tapping into this growing source of funds, sponsors can access long-term, tax-advantaged capital, while offering SDIRA holders unique investment opportunities that align with their retirement goals. The key is understanding how SDIRAs work and crafting strategies to attract and engage these investors.

From educational content to strategic partnerships with custodians and sharing real-world success stories, there's a huge opportunity to build long-lasting relationships with SDIRA holders. 

Ready to get started? Book a demo with us today and discover how we can help you streamline the process. 

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