(833) 510-4189As a real estate investor with a self-directed IRA, understanding the pros and cons of non-recourse loans is advantageous for leveraging your retirement funds to purchase real estate while both mitigating risks and maximizing returns.
As a real estate investor with a self-directed IRA, understanding the pros and cons of non-recourse loans is advantageous for leveraging your retirement funds to purchase real estate while both mitigating risks and maximizing returns.
Non-recourse loans are a specialized type of loan secured by collateral, commonly property. What makes this loan unique is in the case of a default, the lender’s recourse is limited to the agreed collateral. Whereas with a recourse loan, if the borrower fails to repay the loan, according to the loan agreement, the lender can take legal action to fully collect what is owed, including wage garnishment, bank account levy or seizing other collateral.
With a non-recourse mortgage loan, you have flexibility to purchase several types of real estate including single-family homes, condominium complexes, and multi-unit properties. Additionally, you can borrow funds to improve an existing property already part of your IRA.
Start an ApplicationUnlock the full potential of your self-directed IRA with non-recourse loans. Explore how these specialized loans can safeguard personal assets while amplifying your investment capacity, diversifying your portfolio, and enhancing your financial flexibility.
As a real estate property investor, a non-recourse IRA loan can be a valuable tool for limiting personal liability, managing risk, and effectively leveraging your capital.
Non-resource loans create leverage, allowing investors to expand and diversify their self-directed IRA real estate investment portfolio. Benefits include:
Despite the many benefits, there are some disadvantages to financing your investment with a non-resource loan, including the loan terms, qualification requirements and limited lender options.
Since non-resource loans are riskier for the lender, interest rates are typically higher than a traditional mortgage to compensate for the limited recourse the lender has in the case of default. Non-recourse loan lenders may also have more stringent qualification requirements and lower loan-to-value ratios (LTV), requiring borrowers to provide a larger minimum down payment or have more equity in the property.
Finding IRA non-recourse lenders can be more complex compared to traditional mortgage lenders since non-resource lending is a specialization within the financial services industry. However, some companies, like IRA Power Loans, specialize in financing self-directed IRAs. A non-recourse lender understands the unique requirements and regulations of financing an investment property within a retirement account.
Unrelated Business Income Tax (UBIT) applies when a tax-exempt entity like an IRA uses debt financing to acquire rental property. This results in a trust tax on any income generated, known as Unrelated Debt Financed Income (UDFI), as outlined in IRC 514. The portion of profits subject to tax corresponds to the debt-financed percentage of the property. However, you can offset this by deducting depreciation and other operational costs, which can significantly reduce your taxable income. When viewed in light of the potential gains from your investment, the financial impact of UBIT is typically minimal.
Download GuidePaying UBIT can be a wise strategic decision, allowing you to leverage your IRA for greater wealth accumulation, diversified income opportunities and enhanced financial flexibility. Only a portion of your income is taxable, and you can utilize standard deductions, depreciation and exemptions to further minimize your tax liability. Each investment scenario is unique, so we encourage you to use the IRA loan calculator to gauge your potential returns.
Here are a few sources to help you identify lenders who offer IRA non-recourse loans:
Consult with your self-directed IRA custodian. They may have established partnerships or recommendations for lenders who offer non-recourse loans.
Conduct research online. Use phrases such as non-resource loan lender, non-recourse loans for self-directed IRA, or non-recourse loans for real estate investments within IRAs.
Speak with professional advisors who specialize in retirement planning and real estate investment.
Networking with other real estate investors or joining real estate investor groups are excellent ways to source lenders.
Yes! Using a self-directed IRA loan to invest in property can be a powerful way to build wealth. However, it must be a non-recourse loan, which can be difficult to obtain from traditional banks. This is where IRA Power Loans can help.
An IRA Power Loan is a non-recourse loan to your IRA. Non-recourse loan financing does not bear the same conventional liability of a traditional loan; in the event of default, the lender can only seize the property securing the loan. The IRA owner cannot personally guarantee the loan or use other IRA assets as collateral. (Ref IRS Pub. 590)
IRA Power Loans creates leverage, allowing investors to expand and diversify their self-directed IRA portfolio. Our proprietary process and innovative technologies deliver quick and easy access to the capital your IRA needs for your next investment. Benefits include:
Non-recourse IRA loans create leverage, allowing investors the opportunity to expand and diversify their self-directed IRA portfolio. Our proprietary process and innovative technologies deliver quick and easy access to the capital your IRA needs to optimize investment opportunities.
IRA Power Loans can be used in several different ways:
IRA Power Loans offers the flexibility to purchase several types of property in the name of your self-directed IRA, including single-family detached homes, duplexes, triplexes, and even 3-plexes.
Prequalify by answering a few basic questions. We will contact you to discuss available financing options and next steps.
General information including property address, purchase price and financing amount will be required for loan pre-approval. Documentation including but not limited to property appraisal, proof of insurance and operating expenses will be required with the application to complete the underwriting process.
Yes. Investment structure, property type and other related factors are considered when assessing finance terms. We will present you with a loan estimate that provides information including the estimated interest rate, monthly payments, and term length of your loan offer. Prior to accepting, your lending specialist will review the offer with you and answer any questions.
IRA loans are subject to fees similar to a typical mortgage, including, but not limited to appraisal fees, title fees and closing costs.
Yes, you can borrow additional funds by refinancing your existing loan.
There are two reasons why you typically will not be able to obtain a non-recourse IRA loan from your local community bank, national bank, or national mortgage provider.
The first reason has to do with revenue. These institutions typically package all of their home mortgages into large pools and sell them to Wall Street. In order for a loan to be qualified to be sold, it must be in a specific format with specific terms. Non-recourse loans do not fit this format, so there is not much incentive for these institutions to offer these loans to investors.
Second, banks are known for being slow to adapt, stodgy, and built on a culture of “no”. IRA Power Loans is an innovative and tech-forward approach to a powerful tool that is rarely offered in the marketplace. With IRA Power Loans’ proprietary process and easy to use tools, investors have the flexibility and power to truly harness the power of leverage, compounding interest, and tax advantaged growth.
No. IRS Publication 590 prohibits this.
When an IRA (or other tax-exempt entity) utilizes debt financing to acquire property, a trust tax (UBIT) can occur on income generated from the property; also referred to as Unrelated Debt Financed Income (UDFI) (Ref. IRC 514)
The percentage of the profits subject to taxation is determined by the percentage of the property that is debt financed. You may write off depreciation and other operating expenses on a percentage basis, which can significantly reduce the income subject to taxation. In most cases, the financial impact of the tax is minimal especially when compared to potential investment gains.
All expenses associated with an IRA owned property must be paid from the IRA. Your custodian (ex.,Equity Trust) will provide you with instructions to request a payment on behalf of the IRA.