Leveraging for self-directed IRAs

Mortgage and Lending with Land Home Financial Services, Inc. | Corporate: NMLS # 1796 MLO #226620


Leveraging for self-directed IRAs

Some real estate investors (utilizing their self-directed IRA) limit themselves because of the amount of money in their account.  That doesn't always have to be the case.  There are a few lenders out there that will lend non-recourse loans on real estate to IRAs to make investment dollars work harder for the investor.  

Most of these loans are done by Private Money lenders.  They are usually a lower loan to cost than recourse loans, but the lender is taking a bigger risk.  Typically, lenders will lend 50-70% of total loan costs, not to exceed a certain Loan to Value (typically 60-70% of appraised value).

The reason for higher injection from the buyer

Most lenders lean on the fact that if a borrower defaults, the lender can take the property and start litigation for lost fees or interest.  When lending to IRAs, the lender cannot pursue recourse if the borrower defaults.  The only option for the lender is to take the property back.  Because of the added risks of lending in these circumstances, buyers that have a higher percentage of investment in the property are preferred.  

What are the benefits?

Investors are looking for investment growth.  Using retirement funds to leverage some houses lets the funds in the IRA go farther.  Because there are not many lenders willing to lend to them, IRAs have historically had to purchase properties for cash.  When you can purchase a property with private money, it stretches your dollar so it can work harder for you.  To compare, say you have $100,000 in your IRA.  You want to purchase a property for $80,000.  You are only going to be able to purchase that one property.  If you are leveraging properties, that $100,000 can get you into two or three $80,000 properties expanding your portfolio and increasing your chances for income on your investment.

Who lends to IRAs?

There are companies out there that will lend to IRAs, you just need to pick up the phone and ask.  Typically these are going to be Private Money lenders (most people call them Hard Money lenders).  Having worked in the private money arena for quite some time, I have many contacts in Arizona that I personally know that lend on these situations.  If you would like more information, email me at nick@hiltoncorp.com.

Nicholas J. Hilton

Loan Officer

NMLS #226620


Hilton Financial Corporation

11024 N. 28th Drive Suite 170

Phoenix, AZ 85029

(602) 375-8951 office

(602) 375-0760 fax

(602) 680-4994 e-fax

(602) 885-1303 mobile

www.hiltoncorp.com or www.hiltonloans.com

AZ MTG BNK #BK 15047


Comments (3)

Sandi Davidson
Florida's Realty LLC - Lehigh Acres, FL

Thanks for the tip Nicholas.  Using my IRA to invest in realestate is definately an appealing concept.  While it is true that my current IRA performance is probably topping the ROI that rental real estate would in the short term, the appeal of having a continuing steady income flow after retirement is attracts me. 

Apr 21, 2011 06:18 AM
Nicholas Hilton
Land Home Financial Services, Inc. | Corporate: NMLS # 1796 - Denver, CO
MLO #226620

No problem, I know here in Arizona rental properties are generating great cash flow for many investors.  

Apr 21, 2011 06:32 AM
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Olympus Executive Realty INC. - Orlando, FL
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