Have you ever worked on financing a real estate deal and wished you could get a non-recourse loan from a private lender? Here is how it works.
Private Lender Real Estate Financing
Real estate investors use financing from private lenders in various ways and for various reasons.
Private lenders are non-institutional (non-bank) individuals or companies that loan money, generally secured by a note and deed of trust.
Family and friends familiar with the risks of private lending can be a good source of private money. But many investors choose not to borrow from personal resources like family, and borrow from professional private lenders.
A two-fold challenge exits with private lender financing: finding the private lenders, and finding properties suitable for private lender financing. As a result, many investors use an investment brokerage to find investment properties and put the deals together with private lenders.
Non-Recourse Loans for Investment Property
IRS rules allow investors to purchase real estate through their self-directed IRA, and take out non-recourse loans to finance the property.
In the event of a default, lenders can only recoup the pledged collateral (ie, the real estate), and can’t go after the individual investor’s personal assets.
Since there is less personal liability with non-recourse loans, the down payment can be higher. But the tax rate can be lower on IRA-owned investment property, which is extremely beneficial.
For more details, see our article: Purchase Investment Property With Your IRA and a Non-Recourse Loan.
Challenges Securing Private Lender Non-Recourse Financing
There are many benefits to purchasing real estate with private lender non-recourse financing, but it’s more challenging because of the complexity of the deals and the lender’s added risk.
The solution for many investors is to use the expertise of an investment group like Graystone Investment Group to locate appropriate properties, match them with non-recourse private lenders, coordinate everything to close the deal, and bring the property onto the rental market.