Using the IRA Non-Recourse Loan to Buy Your Next Investment Property
What are the advantages of using the IRA non-recourse loan to buy your next investment Property? Well I am very glad that you asked this question! Non-recourse simply means that the lender cannot pursue any of your assets if the property were to go into foreclosure and they couldn't recover the full amount of the loan. Most banks do not provide non-recourse loans because they are too risky. That is one of the reasons why 40% down is the minimum in California with a 20% reserve requirement on the loan balance.
It used to be that banks and lenders didn't want to lend on an investment within an IRA because an individual couldn't guarantee the loan according to IRS regulations. Therefore, people paid all cash when they purchased property. However, certain retirement accounts can now be used to leverage your buying power through a non-recourse loan. If someone retired and they wanted to roll over their $400,000 401K into a self directed IRA, they could potentially purchase a property worth $800,000. Now this would mean that they put $300,000 down and that the loan amount would be $500,000. The remaining $100,000 would need to stay in their IRA as the loan guidelines require that 20% of the loan amount be held in reserve in the account. Obviously there would be various other underwriting guidelines needing to be met but these loans are underwritten more like commerical loans rather than personal real estate loans.
A great benefit of using the IRA non-recourse loan to buy your next investment property is that the net proceeds of such investment can go back into your IRA tax free or tax deferred. So this is a great option for building your nest egg. If you were to transfer your IRA into a stock brokerage account, would they allow you to buy a $800,000 dollars worth of stock if you only had $400,000? Absolutely not, you would only be allowed to buy as much stock as what you have in your IRA account. You cannot leverage stocks like you can leverage real estate when you are using the IRA non-recourse loan to buy your next investment property. Most of the information from this blog was found in the book Leverage Your IRA, by Matthew M. Allen. This book can be found at www.iralending.com
Using the IRA Non-Recourse Loan to Buy Your Next Investment Property
Fresno and Clovis Real Estate Prices
