A popular type of mortgage loan that many real estate investors are increasingly taking advantage of is non-recourse loans. A non-recourse loan is one in which a borrower uses their self-directed IRA to purchase real estate as another form of a tax-sheltered retirement investment. A big advantage of this type of loan is the IRA account holder is not personally liable for repayment of the loan. The security instruments allow no recourse against the individual account holders or the balances of your IRA funds. In the event of default or foreclosure, the lender can only look to the property as the sole source of repayment. The non-recourse lender cannot pursue other assets owned by the account holder or the IRA.
Matt Allen, Vice-President at North American Savings Bank, states in his book Leverage Your IRA-Maximize Your Profits with Real Estate, “One of the creative products that make investing IRA funds in real estate a possibility for almost everyone is the advent of the IRA non-recourse loan. This type of financing was created specifically to allow investors the opportunity to use these tax-advantaged retirement funds to build a real estate investment portfolio.”
What is a Self-Directed IRA?
A self-directed IRA can either come in the form of a traditional or Roth IRA, which means you get the same tax advantages and eligibility and contribution rules. The main difference is the types of assets owned in the account. Regular IRA’s usually house stocks, mutual funds, and bonds, while self-directed IRA’s allow for a wider range of investments, including real estate, notes, tax lien certificates, rental properties or a privately held company.
Advantages of a Self-Directed IRA
Control - Investors can choose how they invest for their retirement using real estate purchases. Other investment options, like mutual funds, bonds, and stocks, are controlled by someone else.
Tax Deferral - Your retirement savings grow in a tax-deferred environment. Individuals can reinvest the profits from real estate investments into other investments tax-free.1
Protection - Self-directed IRAs are similar to trusts, which means they are a separate entity from the owner and are protected by federal and state bankruptcy law.
High Returns - Compared to other IRA investments, self-directed IRAs can yield higher returns, at a faster rate.
Anyone who has at least 40% of the purchase price vested in a self-directed IRA has the opportunity to buy real estate using a non-recourse loan. Loan approval is also subject to an acceptable real estate appraisal, as determined by your lender. Here is a list of self-directed IRA custodians who allow non-recourse loans.2
If you would like to learn more about how to leverage a self-directed IRA to purchase real estate with a non-recourse loan, contact the experts at NASB at 1-866-735-6272, or click here for more information.
1This is not intended to and does not constitute legal advice or financial / investment / tax advice. North American Savings Bank does not make any guarantee or other promise as to the results obtained. The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.
2 NASB does not represent or endorse any of these companies, nor do they represent NASB. Please perform all prudent due diligence before setting up an account.