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IR-eal Estate: How to Use an IRA Non Recourse Loan to Invest in Real Estate

January 03, 20243 min read

Real estate has proven itself to be an excellent investment. It offers a large rate of return without the volatility and risk of the stock market. The real estate business includes tax advantages and can also build long-term wealth.

Would you like to buy into the lucrative real estate market? What if you don't have the cash to buy property now? If you have an IRA, one option is to take out an IRA non-recourse loan.

What Is a Non-Recourse Loan?

A non-recourse loan is borrowed against the value of a stock or a portfolio of shares.

With this type of loan, the borrower is the IRA itself, not the IRA owner. By the end of the loan term, your IRA pays off the loan, and you get back your portfolio including appreciation. You also have the option to refinance the loan or to walk away in the event of a default.

Benefits of a Non-Recourse Loan

With a non-recourse loan, the IRA owner is not liable for repayment of the loan. The property and the attached IRA funds are the only collateral involved. The lender can only recover funds from the IRA itself. If the loan defaults, there is no effect on your credit rating.

Your IRA portfolio remains intact as well. The shares are usually deposited into a custodial account or transferred to a lender. When applying for the loan, income details are not needed, and running a credit report is not required.

What You Can Buy

You can invest in almost any form of real estate. You can buy residential homes, apartments, and condos. You can buy commercial property, retail stores, hotels, and vacant lots. Purchasing farmland or even boat slips is allowed.

Obtaining Non-Recourse Financing

To apply for an IRA non-recourse loan, you must have a self-directed IRA. You will have to provide your IRA statements to the lender. The value of the IRA must be able to cover the sale price, closing costs, and a reserve amount. The reserve amount covers necessary expenses in the event of cash flow issues.

A property's condition, rental history, and needed repairs affect the terms lenders offer. Down payment requirements are often higher than with traditional financing. Interest rates are also higher than borrowers with good credit usually receive.

Restrictions Imposed

The IRA must handle all costs associated with the sale process. Any revenue the property generates must come into the IRA. Tenants write rent checks to the IRA or a company set up on its behalf. The IRA must also pay any expenses related to the property.

Borrowing from an IRA to buy a house for personal reasons is not permitted. You, your family, or your business cannot use the property. A third party must complete all maintenance and repairs.

Getting into the real estate business through an IRA non-recourse loan may be a good option for you. You can leverage a non-recourse through through a self-directed IRA to buy property without needing to sell off your portfolio.

Contact a stock loan specialist to find out how this option can free up cash for a real estate transaction.


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