If you did not know you could do this you do not need to feel alone. Every day I receive an email or phone call from even professional investment advisers who did not realize this was an option. Not too many weeks ago a professional investment adviser came to me after a speech I had given at a large Chamber of Commerce presentation and acted as though I was the goose who would lay the golden eggs. He works for a large, well branded company so I was just as amazed that he had not heard of this possibility.
Several years ago I was introduced to the idea by a builder who was doing some work for me. I did not even realize at the time but my company had done some conventional mortgages for him. He explained to me that we had been doing only a portion of his investments because the others were held in his IRA. Wow, just like others who just heard about this I was intrigued. I soon found out he was dealing with a local bank which was later consumed by a mega-behemoth bank and their program that would allow this was terminated. Now it was incumbent upon me to provide my client with the means to proceed according to plans.
What was needed, the special "missing piece" was a loan that would not endanger the IRA funds in the event there was a default on the property. But where could I get this? What kind of lender would lend money and not be able to recover all of their loan in the even of a default?
The type of loan needed is a non-recourse loan. This is a loan that is secured only by the asset, in this case real property of the small residential investment type, and the equity in the property. If the borrower fails to be able to repay the loan the only way the lender can recover any of their investment is through the property itself. This also created another unique circumstance that we discovered when putting this deal together. If the borrower cannot be held personally liable to make the lender whole in the event of defaulting on the loan then there is no reason for the borrower to personally qualify for the loan.
Now we had the opportunity to create a lending solution very unique to the circumstance: a non-recourse small residential investment loan specifically tailored for the investor purchasing single family to four-unit investment properties using funds from their independent retirement account and qualifying only on the strength of their IRA and the property itself.
So what could make this attractive to those who invest their funds on the lender's side and the people needing the loan to invest? Common ground of course! By leaving enough equity in the property to marginalize the lender's exposure and by not requiring the borrower to qualify on their personal merits we created the perfect solution for both lender and investor and this product is now available nationwide.
The non-recourse loan requires the investor to have a minimum of forty percent of the purchase price in their IRA. In other words if the borrower has $80,000 in their account they qualify for a $200,000 home. Thirty percent will be required as a down payment thus leaving enough equity in the property to make the investment viable for the lender and ten percent must remain in the IRA as payment reserves. This shifts the full qualifications onto the property itself.
With the finalization of the qualification requirements for this new and powerful real estate investment tool were ready it quickly became obvious this would be the "candy in the basket" to retired investors who did not need to financially commit themselves to the loan beyond the thirty-percent down and monthly payments which should easily be covered by monthly rent received. The program additionally could be obtained with no prepayment penalty with a slightly higher closing cost (1 percent) to be used for legal flipping purposes.
Since the strength of the loan rests on the value of the property itself the lender will choose the appraiser and will solely make the determination whether it presents a good risk to the transaction. Properties which need rehab are generally not permitted though aesthetics and clean up is allowed. Properties which are in rapidly devaluing markets also are not considered but there are so many fantastic deals right now across the nation this is a tool, neé a weapon, you should have in your arsenal for real estate investing.
To see if a property would qualify for a non-recourse loan for an IRA investment is a very simple process by downloading a one page form that doesn't ask for credit, employment or banking information. You can download the non-recourse real estate investment loan form from this link to see if a deal will qualify for this type of loan.
Ken Cook is Director of Operations and a certified Fraud Detection and Deterrence Officer for Novation Mortgage in Marietta, Georgia. He is also an accomplished author and industry trainer. He may be reached at 678-946-0101 or through http://novationmortgage.com Novation Mortgage uses the DISSCO system from Interthinx on every file submitted for approval.
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