In most retirement investing, the talk is centered around one individual. One investor is trying to save as much money as possible for retirement. But with joint ventures and partnerships, which you can read about more here at our website, the equation changes. As we note: “Joint Ventures and Partnerships afford individuals the opportunity to enter into business arrangements with one or more individuals.” The advantage is that this spreads wealth and risk to multiple parties. This can potentially create benefits for the individual investor who joins one.

There are typically two arrangements which people need to know. The first, joint ventures, is typically a short-lived arrangement in which two parties go into business together with a specific goal in mind. A partnership is more of a long-term arrangement. In this article, we’ll focus on what it might look like to invest in a joint venture within a Self-Directed IRA.

Self-Directed IRAs: What is a Joint Venture?

Let’s respond to this by taking an example. Imagine if two parties joined together to purchase a single-family house for the purposes of “flipping” it—renovating it and selling at a profit. This was the sole purpose of the venture, so when the house is sold, the joint venture ends. There’s no further obligation from either party.

This example shows that it’s possible to invest in real estate even within a Self-Directed IRA. Although many investors turn to non-recourse financing within a Self-Directed IRA, which is always a possibility, a joint venture is another way to extend the amount of real estate an individual can purchase—with the idea of splitting the profits between parties when the real estate is sold.

Why Do Investors Choose Joint Ventures?

The above example serves as a solid demonstration of why investors choose joint ventures in the first place. Splitting a transaction between two parties has some advantages. Although the joint venture means giving up some of the profit when it’s time to sell the real estate, it also spreads out the risk—and the amount of money that the individual’s IRA has to put towards the joint venture. This can make investing more flexible. For example, an investor might not want to go 100% with an investment within a retirement portfolio and expose retirement savings to unnecessary risk. A joint venture is one way of resolving that issue on a particular investment property.

What is a Self-Directed IRA for Partnerships?

Partnerships are more long-term arrangements that can be beneficial for the reasons listed above—but when two parties decide that it works well, can formalize the arrangement into something that lasts. This isn’t to say that a joint venture isn’t formal, or won’t have any paperwork involved. But when a partnership becomes part of the equation, it becomes a longer-lasting series of joint ventures.

Making Sense of Joint Ventures in Self-Directed IRAs

Why do investors seek out joint ventures within a Self-Directed IRA? It’s the same reason as any joint venture—but with the tax benefits and advantages of Self-Directed IRAs. As long as an investor is careful to stick to the rules, work with a credible Self-Directed IRA custodian, and handle everything the right way, these can be very profitable ways to put money aside for retirement. It requires a bit of skill and experience, but that’s exactly why some people flock to Self-Directed IRAs—they know they have an asset class they like and they want to use retirement accounts to use that experience. For more information, reach out to us here at American IRA at 866-7500-IRA.