Recent increases in investor acquisition of real estate have prompted calls from clients that have cash in their self-directed retirement accounts but don’t have enough to buy a property outright. In other words, their IRAs need loans.
There are lenders that will make loans on income producing properties to self-directed IRAs on a non-recourse basis. A non-recourse loan is one in which the self-directed IRA, whether it is a traditional tax-deferred account or a tax-free ROTH IRA, is liable for the repayment of the loan. In the event of a foreclosure, the lender can only look to the property for repayment and cannot go after other assets that are owned personally by the IRA account holder.
The secret to acquiring property on a non-recourse basis is the down payment. Typically, lenders would like to see at least 30% down from the self-directed IRA. They also want to see that the IRA has the ability to meet the payments and pay the expenses of the investment property being acquired.
What is needed to apply for this type of non-recourse loan?
- The lender’s loan application
- Purchase/Sales contract signed by the self-directed IRA account holder and IRA Innovations or administrator
- A lease and rent rolls if the property is rented
As you can see, the process of financing an investment property with your self-directed IRA is very similar to applying for a loan personally. The difference lies in the contingent liability that you would have personally. This does not apply to a non-recourse loan.
As always, I suggest you contact your tax adviser before you decide to pursue non-recourse lending. We do not give tax, accounting, or legal advice.
For more information on non-recourse loans for the self-directed IRA, visit our website at www.irainnovations and join me on November 14th as I discuss Real Estate Investing for an IRA, a webinar that will educate those interested on how to use a retirement account to invest in Real Estate for future wealth accumulation.