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PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Using Your Self-Directed IRA to Invest in Real Estate Technology

  |  By Chris Shanahan, CISP®

Investing in real estate and startups are two popular strategies among PENSCO’s self-directed IRA clients, and now a growing investment opportunity is bringing these two interests together: real estate technology or “proptech.”

Just as the rise of fintech—finance plus technology—is ushering in a wave of technological innovation that is disrupting the once-sleepy world of finance, proptech—property plus technology—is disrupting the sleepy world of real estate.

Startups like WeWork, Opendoor and Compass are using innovative software and technological solutions to make everything from buying, selling, renting and managing real estate more efficient.

The result is a surge of real estate technology startups. Today, proptech covers everything from the modernization of real estate marketplaces to blockchain-based home buying solutions to the augmented reality services being used to market and sell properties. As a result, billions of venture capital dollars are flowing into the space.

The chart below shows that venture capital investment in real estate tech began to surge in 2014. Real estate technology companies have attracted $2.2 billion this year through September, according to PitchBook, and 2018 is on track for more than $3 billion of capital invested to be in the space. Deal count has increased every year since 2014, and this year is on pace for a decade-high total. 

Growing Venture Capital Investment in Real Estate Technology

*Per Pitchbook, 2017’s figure skew unusually high due to a $3 billion round of funding raised by WeWork

Using Your IRA to Invest in Real Estate Technology

Many retirement savers mistakenly believe they can only use their IRA funds to buy traditional asset classes like stocks and bonds, but investors can diversify their retirement portfolios by holding alternative assets in an IRA. By working with an IRA custodian, like PENSCO, self-directed IRA owners can use their retirement funds to invest in startups and buy stakes in early-stage companies, such as those in the real estate tech space.

Investing in startups can potentially be a good match for retirement dollars. Often, start-up investments require long hold periods, and IRAs are designed for longer-term investing. Real estate tech also represents an investment that, unless you are already retired, does not need to be accessed immediately.

In addition, IRAs can provide tax benefits. Holdings in a traditional IRA can compound year after year on a tax-deferred basis. If savings are held in a Roth IRA, account growth may accumulate tax-free. Investors can face penalties if they take withdrawals from a traditional IRA before turning 59½, meaning many investors favor holding longer-term investments in these retirement portfolios.

While the future may seem bright for real estate technology, investing in proptech startups comes with considerable risks. For starters, there is never a guarantee that a startup will succeed, or that you’ll earn a return on your investment.

Being a self-directed investor also means that you are responsible for evaluating the merits and suitability of all proptech investments you are considering and vetting the individuals who may be offering or recommending these investments. At PENSCO, we review a deal for administrative feasibility but we do not evaluate the merits of the deal, and we cannot offer investment advice.

If you are considering a real estate technology investment opportunity, it’s best to consult with a trusted financial professional who can help you assess a deal’s risks and determine if it’s a good fit for your investment needs and goals.

If you have questions about holding real estate technology in your PENSCO self-directed IRA, please contact us at 800.962.4238.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity.  Alternative investments are not FDIC insured and are subject to risk, including loss of principal.  PENSCO is indirectly affiliated with a registered broker dealer and with a licensed small business investment company through Opus Bank (“Opus Affiliates”).  Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.