One of the best things about Self-Directed IRA investing is the nearly endless ways you can protect yourself through diversification while still getting an opportunity for competitive returns over time.
By expanding your investment universe with a Self-Directed IRA to include alternative asset classes, you can reduce your risk exposure to the notoriously volatile stock markets and reduce your footprint in bonds, which will be a difficult environment to be in while the Federal Reserve is increasing interest rates, which is the overall trend as of this writing.
One of the unsung alternative asset classes that can help you generate decent returns that are not closely correlated with the stock market is equipment leasing fund investment. These are a relatively little known group of investment funds that buys equipment on behalf of businesses that need them to operate. The fund then leases the equipment to the business, and the business pays a monthly lease payment on the equipment. The company gets the benefit of a full tax deduction on the equipment, and it gets to place the equipment into service quickly, using just a small amount of capital in the short run maximizing precious cash flow.
Benefits of Self-Directed IRA Equipment Leasing
The investor gets the benefit of a reliable income stream. Typically, the leasing fund maintains downside protection, as well, since it retains ownership of the leased equipment. If the company fails to make payments, the leasing fund can repossess the equipment and lease it to someone else.
Leasing companies tend to borrow money themselves, since they can earn a spread between their cost of capital and the rate that their leasing clients pay on leased or rented equipment. So the Self-Directed IRA investor has two opportunities – take an equity position in an equipment leasing fund (typically set up as an LLC or limited partnership), or act as a lender to the equipment leasing fund, getting an un-leveraged rate of return (unless you borrow money within your IRA to do it!) but a senior position and a more reliable income stream.
The equipment leasing business is often counter-cyclical: Larger companies continue to lease equipment even through tough times, and economic uncertainty also tends to benefit lease companies, since many companies will still need equipment but be reticent about committing capital reserves to an outright purchase.
Self Directed IRA Equipment Leasing Ideas
The list of potential items you can lease or rent with this arrangement is endless, but common examples include:
- Medical equipment
- Merchant services/credit card processing equipment
- Cars, trucks and vans
- Tractors and farming equipment
- Construction equipment
- Office furniture
- Temporary structures
- Landscaping equipment
How To Invest Your Self-Directed IRA in Equipment Leasing Opportunities
You can invest directly in a number of companies that do equipment leasing – some of them are publicly traded. But there’s nothing preventing you from getting together with a business owner in your own community and funding an equipment purchase yourself: Just set up an IRA account with American IRA, LLC, transfer funds to it, and have an attorney draft a solid lease agreement between you and the business for the equipment. When you’re ready, tell us where to send the money to purchase the equipment, title the equipment in the name of your Self-Directed IRA, and have the business owner sign the lease agreement. Rental or lease payments should come directly to American IRA, which will credit your account accordingly.
Self-Directed IRA Prohibited Transaction Rules
Remember: Prohibited transaction rules apply: You cannot use your IRA to purchase equipment from or lease to yourself, your children or grandchildren, parents or grandparents, spouse, spouse’s ascendants and descendants. Don’t store leased equipment on your own property, don’t use the equipment yourself and make sure you pay for all expenses related to your equipment leasing operations from your IRA. If you start mixing personal and IRA assets into your equipment leasing business, you could endanger the tax-favored treatment of your IRA.