IRA (non-recourse) Loans More Attractive Everyday
Posted on Monday, August 9th, 2010 at 10:58 pm.
Do you want to diversify your retirement savings in your 401(k) or IRA to get some of that money out of the stock market & into Real Estate? We’ll, it’s easier than you think!
Leveraging Your Money
One of the huge advantages of owning real estate as an investment is that you can leverage your money to create greater returns. If you want to buy $100,000 of Microsoft stock, you generally need to fork over $100,000 of cash and so you don’t have any financial leverage in your investment. In real estate you can leverage your investment because you only have to fork over as much of a down payment as your lender requires and you can finance the rest which creates financial leverage. Let’s say you put 20% down on your real estate purchase, that’s only $20,000 of your cash to purchase that same $100,000 investment. Now, if the value of your Microsoft stock increases to $150,000 what’s your rate of return? In simple terms, it’s $50,000 on a $100,000 investment so your return is 50%. If your real estate investment increases that same $50,000 but your cash investment is only $20,000, then your return is 250%. Which is better for you? That’s the power of leverage and it’s used all the time by companies and investment firms to turbo charge their results. So what does this have to do with your IRA?
Buying Real Estate in an IRA
It is absolutely legal and relatively easy to purchase real estate in your IRA, however, there are some rules. On of the main rules is that you can’t have any self dealing with your IRA funds otherwise you can lose the tax advantage of the IRA. For example, you can’t personally guarantee a loan for your IRA so if you wanted to buy a piece of real estate for $100,000 but only had $50,000 in your IRA, you were stuck. The solution in the past was to use a non-recourse loan in which the lender didn’t require any personal guarantee. The problem was that in the real estate market the last few years, no one trusted the real estate investment so non-recourse loans were hard to come by and very expensive.
Cheaper non-recourse loan are back!
Now, with the real estate market improving, lenders who specialize in non-recourse loans are back in the market and looking for those IRA dollars for lending opportunities. North American Savings Bank in Leawood Kansas has recently announced that they are decreasing rates and loan origination fees for non-recourse loans used to purchase real estate inside of IRA’s. According to Jason Zook of North American Savings Bank, they have lowered loan origination fees back to 1% and have 30 year non-recourse loan as low as 5.875%. These rates and fees have not been seen since December 2008.
We’re here to help!
If you’re interested in learning more about buying and financing real estate using your retirement funds, please call Craig Becker at 303-770-2409 and we’ll show you how diversifying your retirement savings into real estate and leveraging the funds in your IRA can mean lots of extra retirement dollars when it’s time to retire.
Craig Becker is the managing broker for Stix & Stones Fine Colorado Properties, a Certified Public Account and expert in real estate investing.
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