Real estate is a popular self-directed IRA investment. There are times when investors are interested in a particular residential or commercial property but only have a portion of the funds needed for the purchase available. Self-directed IRA owners that find themselves in this position may have the option to finance the purchase with a non-recourse loan from an IRA lender.
A non-recourse loan is one in which the lender has no recourse to other assets owned by an IRA owner in the event of default. If the loan goes into default, the lender may take possession of the underlying property, but it would be the only eligible asset that the lender would be able to pursue.
Few companies offer IRA lending, and the requirements for a loan to an IRA are very different than for personal loans. Here are a few points to consider if you are thinking about financing a property with your IRA:
- A minimum of 30% down is needed, with some lenders requiring 40%
- The property appraisal and potential income will be the main points of consideration
- Properties that are not move-in ready or needing only minor work or repairs may not qualify for funding by the lender
- Most IRA lenders will require that a portion of the loan remain in the IRA account for any expenses that might come up
- The IRA may need to pay unrelated business taxable income (UBTI) on the leveraged portion of the real estate
STRATA Trust Company does not recommend any individual investments, and as a self-directed IRA custodian, we do not offer non-recourse loans.