I have a small paek under contract in central Florida and am now in the due diligence process including getting bank financing. It’s a small deal of $480,000 of which I will put down 40% from my self-directed IRA. The IRA requires a non-recourse loan. I am having trouble finding a local bank that will do a non-recourse loan. Does anyone have experience with this situation or suggestions for financing this deal. Thank you.
@Timothy I asked the similiar question on Biggerpockets forum you can read it here
I believe the loan amount is too small to do the non-recourse loan. However, I am not experienced in it.
Thanks Andrew. From what I’ve found out, it looks like my deal is too small to get bank financing. So I will try to get seller financing or forget it. I wouldn’t have my money in an IRA if I had it to do over.
Just about every bank will do a non-recourse loan. Here’s the conversation typically.
You: "Do you do non-recourse loans?"
Banker: "No"
You: "What if I put down 50% instead of 20%?"
Banker: "Sure, we’d do that non-recourse"
You: "Then you really do make non-recourse loans, right"
Banker: “I guess that’s true”
All that is at issue is how much you have to put down to hit non-recourse. 50% is pretty standard, but I’m thinking that 40% should work for the right bank. So don’t give up. But hit every small town bank in that market. They are the most flexible.
Hey Timothy,
Marc Simpson with Peak Choice Capital. I may be able to assist you with this transaction (The size is perfect for our stated commercial guidelines) but are you fully opposed to recourse and/or partial recourse?
Regards,
Marc Simpson
The IRS is opposed to recourse loans with a self directed IRA purchase. It is illegally contributing to your IRA.
That’s Correct. Just wasn’t sure of the flexibility on downpayment options. Maybe could have work something out in that case.
I believe you also cannot manage the park yourself or you run afoul of IRS self-dealing provisions. You will have to hire a third-party management company. Be careful!
I believe that there is an IRS ruling that allows you to manage your park. It is the same (in the IRS eyes) as managing your portfolio of stocks. You cannot be compensated as the manager.
Timothy,
Maybe you can combine your IRA with your wife and your kids IRA. We set one like that up a few years ago and now I have my in-laws begging me to let them in on the action.
If the deal is still ongoing, have the seller carry the note for a short period of time.
After you have made payments for a year, sell the note to a note buyer. Me.
At that time it will be seasoned with a low loan-to-value ratio.
That should help get a better price for the note.