Real Estate Investing Dictionary

Non-Recourse Loan

A non-recourse loan*, as required by the IRS, is one in which the lender’s only recourse – should you default in paying it back – is to go after the equity in the property itself. The lender cannot come after you personally, nor the funds in your retirement account. Because there is no personal guarantor, we add 1% to the interest rate compared with a comparable non-IRA loan.

 

Buying real estate in your IRA with a Non-Recourse Loan vs. buying it using non-retirement funds has numerous advantages:

  1. As mentioned, the leverage a Non-Recourse Loan provides to your IRA
  2. The current (and/or future) tax advantages of investing in an IRA and having your money grow in a tax-free environment 
  3.  Avoiding the early withdrawal penalties that could be incurred by "breaking" your IRA to purchase a property personally. For example, if you needed a significant down payment to purchase a property and had funds available in your IRA you could:
    1. Draw those funds from your IRA and pay the early withdrawal penalty or-
    2.  Use those same funds WITHIN your IRA with no penalty!
    3. It is easier to qualify for than our personal hard money loan – there are no income or assets requirements (although we do pull a personal credit report) and we do require at least 20% of the loan amount in cash reserves in your IRA account (to cover property contingencies).

 

A self directed IRA (SDIRA) custodian is required to buy properties in your IRA.  There are several companies that can do this for you.  We have many custodians recommended by some of our private lenders that can fill this requirement for you. Please ask. 

 

*The Investor’s Source LLC is not a tax or investment advisor, and is not qualified to provide tax or investment advice regarding IRAs or any other investments. Please consult with a professional tax advisor before deciding on any of the investment options discussed below or anywhere else in this website.