Craft beer is all the rage. Everywhere you look breweries are popping up. It is actually a neat phenomenon. You typically have these younger artisan beer makers who are becoming successful business owners. The brew pubs themselves are at times a work of art. Anyone that visits a brew pub has seen them develop over the last few years as the brewers have become better beer makers as well as more business savvy individuals. So where does all the money come from to start these breweries?
Most of it is private equity. One of the unique features of developing a small business is finding the right funding. At Midland Trust we have seen several investments invested in new ventures, specifically in breweries. These breweries are almost always a startup company that needs new capital funding. Self-directed IRAs are the perfect vehicles to provide capital to these new entrepreneurs.
A self-directed IRA is no different than any other type of traditional or Roth IRA, with the main benefit being that all gains inside the IRA are tax free. Any type of IRA can be used as self-directed. Traditional, Roth and SEP are the most popular. The really cool thing about self-directed IRAs are the type of investments you are able to make. Traditional brokers limit your investment to public stocks and bonds. With a self-directed IRA the investments are limitless. You can invest in real estate, private lending, limited liability companies, and private stock. The list is actually endless.
Below are some unique investments in the craft beer industry that were funded using a self-directed IRA.
- Investor John buys an old warehouse that is rented by a couple of hipsters that decide to open a brewery. The beer they brewed goes on to win 2 gold medals at a craft beer competition and John gets a healthy tenant for his IRA investment. All rental income is going directly into his IRA tax-free.
- Investor Hillary loans $75,000 in startup money to a new brewery. These entrepreneurs were first time business owners so loans were not easy to get. Her loan helped them get started and to succeed. She gets a 9% return on her money that goes back into her IRA, and the new owners go on to develop a bestselling Vanilla Porter.
- Javier is starting his brewery in South Florida. The corporation is selling 10% interest in the new C Corp to investors. Juan buys a 10% share for $50,000. Since turning a profit Juan has received a 7% dividend back to his IRA that is all tax-free.
These are just a few IRA investments that we have seen invested into craft breweries. Self-directed IRAs are an economic driver upon themselves. Many small businesses or real estate investments may not have happened if it were not for private equity and the investment risks that these IRA owners felt comfortable with.
Self-directed IRAs are a new opportunity for many investors and for smaller companies to raise capital. They allow investors to invest in these non-traditional assets like private notes, private LLCs, and real estate to gain better returns than the typical public stock market investment. Feel free to call Midland Trust for more information about self-directed IRA accounts and to start unlocking your IRA’s full potential.
Please be aware that all investments have risks and are never insured by the custodian or the FDIC. Consult with your tax or financial advisor before entering any new investment.