SDIRA's and Non Recourse Loans Fact or Fiction?
I have heard several offers regarding non recourse loans to IRA's for real estate. Has anyone ever done this before? Would you please walk us through the process if so?
Marc FaulknerThe insurance co was Ohio National and the bank was Pinnacle Bank. The commercial bank loan officer was Brett Michaels, but, I'm not sure if they loan out of state.
Where is Pinnacle located at please? Do you have a contact person over there or did the broker handle all of this?
Hello Guys!
I purchased my first home in my SDIRA 4 years ago with a Non-Recourse loan that I have since paid it off. This Non-Recourse loan I was able to get from a friend of the family at a cheap rate. I am currently in the process of refinancing that home, so I can use the proceeds to acquire another home in my SDIRA.
I am currently using a local Credit Union that is setting up the loan for 2% origination and 6.75% on a 7/1 ARM with 30 year amortization. My intent is to have the loan paid off within 7 years. The lender is requiring 10% liquidity in the fund and 60% of the appraised value LTV.
This will enable me to have 2 properties in my SDIRA and once I build up enough funds my plan is to leverage the 2nd property to gain a third.
Kaaren from UDirect gave me an extensive list of companies that loan Non-Recourse loans, but the majority of them loan in the California area, not in my State.
I found my local credit union through my local SDIRA company.
Hope this helps !
Jim
James Harper Thanks for the reply. Is your local credit union making the loan to your IRA or to you?
FYI, I just got approved withe NASB based on a recommendation from a BP member for my first non-recourse loan, a cah out refi or a previously free and clear rental.
they are loaning 90K on a $150K property at 5.625% fixed over 30 years. Origination fees of about $2K.
Titled to my SD 401K plan.
Not overly impressed with the rate or fees but does free some cash.
Thanks for the reference Eric.
Just for clarity Marc Faulkner the Non-Recourse Loan is being made to my SDIRA, as liquid cash, so my SDIRA can use it to purchase my second property that I have an offer in the process of being approved.
My next goal is to purchase a 3rd property with the remaining funds in my account and potentially leveraging the 2nd property that will be free and clear based on this transaction.
Jim
The other creative thing some private firms are doing is securing a quit claim deed to be executed if the borrower falls 60 days behind (some are asking for execution at 45 days). This protects the lender from the cost and time of foreclosure.Not sure which lenders are doing this but they had better watch out, this is not legal and they can get into a whole bucket of trouble! As a lender, you are not allowed to have a pre-signed deed in hand in the event your borrower defaults.
As to Non-Recourse loans, just like with any other loan, you have two options, institutional and priavte parties. Yes, they are for real (non-recourse) as cited by many in this thread.
Perhaps this is off topic a tad, but with all the negaitives, not sure why many would want to use such an option. For instance, in my opinion, holding property inside an IRA is not the best use of those funds, so many rules and regulations to deal with and you lose quite a bit of the advantages of holding RE (depreciation, etc since it is already a tax advantages account). Plus, when you utilize leverage, then sell, you incur UDFI (unrelated debt financed income) which translates into complicated taxation (and expensive too). Now, you avoid this by paying off the loan with IRA funds 365 days prior to selling, but you need that ability and must wait the year before selling to avoid the taxes.
My opinion is that you can do so much better just being the bank and lending from your IRA/401k, more passive, less rules to deal with, no managerial headaches, etc.
Troy Stites The nonrecourse we closed last year was 5.5% ,70%LTV 10yr term with 20yr amort. 1% point to the mort. broker and the insurance co. fees
Marc Faulkner Pinnacle is located in Omaha and the commercial loan officer is Brett Michael. E-mail:[REMOVED]
Great - Thanks Dennis. Good reference. Was it with a bank, credit union etc.?
Troy Stites when you say the financing you offer, you ar referring to investors in YOUR properties correct? I couldn't receive that from you for my properties correct?
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I called around today and googled. I ran across a broker, who sold loans through what he claimed the only 2 non-recourse lenders on SDIRA realestate in the country: NASB, First Western.
Please add any other lenders. I'm in GA.
They just don't want to deal with the type of rental properties we hold since the down turn, here in Atlanta ~$40k-$50k purchase + rehab now are worth in the range of $100k thanks to the Hedge Funds buying this summer. They don't want to fool with these nice rentals! Here's what Zooker from NASB said:
"We are currently financing single family income producing property at a maximum 70% loan to-cost, multi–family, condos, and town homes at a maximum 60% (CA, FL, AZ, NV, MI, OH max 55-60% on any property). The loan amount is determined by the property condition, cash flow, retirement reserves, recent property history, and note we have a minimum $50,000 loan amount. The bank fees for a purchase transaction are 1% of the loan amount (1.5% if cash out owned greater than 6 months) plus $695 in processing/underwriting fees.
The interest rates for a non-recourse loan are 4.25% for a 5/1 ARM (fixed for 5 years then adjusts annually over a maximum 20 year time period), 5.625% for a 10 year fixed, 6.375% -15 year fixed, 6.75% - 20 year fixed. Special quotes will be given for larger multi-family property
Unfortunately these do not work as we require a 3 year seasoning period to look at value and even then it can be difficult.
These are portfolio loans and management is more stringent on approval; minimum purchase prices would have to be 70-75k for us to take a look at them"
So from my 2 hrs of research and calling, It's fiction that NR lending is available for typical SD IRA investment rentals, least in the South East where rentals are typically bought for less than $50k. Maybe this info will be helpful for the NY and SF folks where investment property is many times what I paid...
--I'm open to private borrowing, but the lender would have to be content with at most 9% simple interest, no/low points, 50% loan to current appraised value, seasoning less than 6mo.
Good luck folks, curt
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In a couple minutes of searching in Orange county Florida, I found multiple loans from First Western Federal Savings Bank to a SDIRA. Found one that was just canceled in March and originated in September 2008. Another for $48K was originated 10/14/2010 and has not been canceled. So I disagree with your statement "It's fiction that NR lending is available for typical SD IRA investment rentals, least in the South East where rentals are typically bought for less than $50k."
http://or.occompt.com/recorder/eagleweb/downloads/20100661900.pdf?id=DOC691S1731.A0&parent=DOC691S1731