Many people are asking for a non-recourse real estate loan these days, especially those who live in states like California, which have consumer non-recourse real estate loans for personal residences. There is a difference between those kinds of non-recourse loans and the loans that First Western Federal Savings Bank provides for investors who use their self-directed retirement funds (like a self-directed IRA) to buy investment real estate.
In the case of the personal real estate loan that some states describe as non-recourse, the borrower for a personal residence must qualify for the loan based upon their personal taxable income, credit worthiness, other debt they have, length of time on the job, etc. Those loans are strictly made to the individual living in the home they are purchasing. And upon default, there may not be personal liability for the balance of the loan in some circumstances.
In the case of the non-recourse loans provided by First Western Federal Savings Bank, those non-recourse loans are made to self-directed retirement plans such as self-directed IRAs, Solo 401K Trusts, and LLC’s funded by retirement funds. These non-recourse loans are the only loans that those entities may use to buy property per Federal Tax codes. The person is not the borrower, the retirement plan is. The person does not have any liability (unless they allow fraud or waste to be committed on the property) to pay the loan back; the retirement plan pays the loan back.
The repayment of the loan is not based upon the person’s income or assets, but upon the amount of rental income or cash-flow the property will produce and the amount of liquid assets still available in the self-directed IRA to service the debt and provide a liquidity buffer for unexpected expenses or events.
These non-recourse loans are a great way for investors to leverage or use their existing retirement funds to purchase more real estate than they could using simply the cash in their accounts. By using their retirement funds as the down-payment, and bank funds for the balance of the purchase, those investors have the ability for instance to buy 2 properties with leverage where they may only have the funds to buy one property with all cash. That allows more rental investment income to accumulate in their accounts for future investment goals.
Bottom line, non-recourse loans for retirement plans are a specialized loan product that very few lenders in the nation provide. These loans are different than non-recourse loans provided to persons in some states that allow them for personal residences.
At First Western Federal Savings Bank, we provide non-recourse loans for retirement plans (like a self-directed IRA) and are one of the few banks in the nation who provide these loans. Give us a call at 800-908-8845 or email Jeff Fullerton or Roger St. Pierre today to see if a non-recourse loan for your self-directed IRA or retirement fund is right for your investment property purchase.