FOLLOWING THE RULES A Real Estate Investor's Guide to Mortgage Regulations
I t’s a common problem: Many peo- ple want to get started in real estate investment or buy more properties, but their biggest store of liquidity is in their IRAs and other retirement accounts. Fortunately for investors in that situation, there’s a simple and straightforward solution. Rather than borrowing the money themselves, investors can simply have the IRA or other retirement account take out the loan and acquire the property. To preserve the favorable tax treatment of the IRA, investors must follow two important rules:
lender can foreclose on the collateral itself, but that’s all. REAL ESTATE IRA LOAN UNDERWRITING Generally, the maximum loan-to- value ratio attracting funding in today’s market is 65 percent to 70 percent, meaning lenders will typically require borrowers to have at least 30 percent to 35 percent equity before originating a loan. Certain types of property may involve higher equity requirements. If the loan should go into default, the lender can foreclose on the collateral itself, but that’s all. The lender can’t seize anything else in the IRA. The non-recourse requirement is
ascendants, descendants or their spouses or any entities they control (the disqualified persons rule). 2 Any such loans or mortgages must be non-recourse loans. NON-RECOURSE LOANS All loans made to an IRA of any kind (Roth, SEP, SIMPLE, etc.) or to a self- directed Solo 401(k) must be made on a non-recourse basis. The lender cannot attach anything else in the account other than the specific property listed as collateral. The account owner or any disqualified person cannot sign a personal guarantee of any kind. If the loan should go into default, the
1 The loans cannot come from the IRA account owner, spouse, lineal
16 THINK REALTY INVESTOR REVIEW
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