BawldGuy Here: A factoid we shouldn’t ignore is that in this report, about 1.2 million Americans gave up lookin’ for work, and therefore, weren’t including in the stats. That tends to skew the numbers. Geez, ya think?

This is an important time to keep an eye on stocks and just overall activity on Wall Street as yes, the economy is showing signs of life, but look out for the follow up to a 1-2 punch; they are still trying to work out a deal over in Greece to prevent a complete default. I no longer thing it is possible, it is probably quite probable. Inevitably they will strike a deal to bail out Greece and when they do, it will be another shot in the arm for the stock market.

The sky is not falling and I’m not saying we’re going to see rates skyrocket, just thought you need to keep your eyes and ears open to what’s going on right now.

On to the rates:

Assuming 20% down for SFR, and 25% down for 2-4 units

30-yr. Fixed Rate mortgage can be leveraged at 5% for SFR

30-yr. Fixed Rate mortgage can be leveraged at 4.875% for 2-4 units

That’s it from me, now go out there and enjoy your weekend, and if time permits, give myself or the Bawldguy a fix! We love this stuff!

Oh yeah, if you’re a football fan, like I am, I heard there’s a big game on this Weekend. Enjoy responsibly and be safe!

So far today, all is quiet on the western front.  Not a whole lot of activity going on up at the ‘Wall’.  My guess is there is a lot more talk about the Giants’ chances this Sunday than about stocks and bonds.  Some of you may know that I am a self-proclaimed cheesehead, and last Sunday was not a good day for me and all of Titletown, USA.  But there’s always next year, so on to the important stuff!

Hot off the press, the US Economy is back!   Er, maybe.  Again, the pessimist in me still says time will tell, and I advise you not to get too excited by the news that came out today, and neither will the seasoned investor.  The NAR (National Association of Realtors) proclaimed that December’s pace of existing home sales was up a full 5 percent over the prior month.  Also, the number of Americans applying for first-time unemployment benefits, declined by 50,000 during the week ending January 14th, which is the best performance since around April 2008.  I’m cautiously optimistic about this number, but remember, there are always ‘tainted’ numbers this time of year, due to the seasonal hiring from Thanksgiving through the Christmas holiday.  There’s still some  more numbers to be hashed out, but trust me the proof will be in the pudding at the end of the month when the next round of non-arms hits the tape.

You may have seen that rates are edging up ever so slightly, in large part to our good friends over in Europe, vowing to increase the International Monetary Fund’s warchest by $600 billion to help alleviate or lessen the blow to the European countries dealing with the financial crisis that has been hitting them hard as of late.  That’s good news for Europe, and good news is bad news in the mortgage world.  Because positive eco news, means stock prices rise and mortgage-backed securities and bond prices drop.  Also, there are increasingly positive talks between Greece and their creditors to hash out a deal soon, that may prevent a complete default by Greece.  If a deal is reached, we will most likely see rates tick up just a touch higher, but nothing to be overly concerned with.

The biggest upcoming bit of eco news is the Federal Open Market Committe will get together for a couple of days of monetary policy discussions beginning Tuesday and concluding Wednesday.  It is expected that there will be no change on the Fed’s stance to keep mortgage rate’s low.

Ok, now the rates.

Single-Family Residence can be purchased with 20% down and carries an interest rate of 4.875% on a 30-year fixed rate

2-4 Unit properties can be purchased with 25% down and carries an interest rate of 4.75%

Everyone have a safe, restful weekend and we’ll hit the ground running on Monday!

BawldGuy Here: Most of Chad’s contact info will be changing this comming Monday, January 23rd. When I get it, I’ll post it.

Here’re Dave’s questions, verbatim, with text before and after, edited out. You can still see his comment in its entirety by going to the link above.

Let’s assume one buys a $250,000 home in Austin. He puts down 20% and gets a 30 year loan at 4.62% for $200,000. He rents it out for $1375/month. He has plenty of cash stored away in case of an emergecny. Here is how my numbers would look:

mortgage=$1,025/month
insurance=$45/month
taxes=$100/month
maintenance=$100/month
property manager=$108/month (8% of 1 month’s rent)

TOTAL=$1378

Basically, it would be a breakeven. So, what you are really saying is that it is perfectly OK to not cash flow. As long as one buys in the right location and has the right time frame, then the plan would still work out over the long run. Is that correct? Are my numbers somehwat close to being correct for buying a nice home in a good area in Texas?

Where do I begin?

I’ll take most of the blame for this one. You’re foundational assumption is inaccurate — the property of which I was speaking wasn’t a house. It was a duplex. The rent wouldn’t be $1,375/mo. It’d be anywhere in the range of $1,225-1,3550/mo per side. So, if you used a recent, real life example, it’d look something like this.

Paid $255,000 — rented $1,350/side — $2,600/mo — $31,200/yr, gross rent. Expenses would run in the neighborhood of $11-12,000. This would include everything. My clients only pay 5% management fee.

Let’s say the Net Operating Income (NOI) is around $19,500 or so. At 5% interest your monthly/yearly debt service, at 75% LTV, would be $1,026.67/12,320. You can readily see there is some decent cash flow there. Again, I take responsibility for you thinkin’ it was a house, and not a duplex.

But you ask a great question, Dave. Is break even OK? Well, yes, and no.

In today’s investment climate, I’d be far less inclined to advise clients to accept a break even property. On the other hand, the key question would have to be — What would the specific circumstances be? In past eras I’ve literally begged a few, select clients to purposefully buy multiple properties with a combined negative cash flow that’d make your head spin. But those were way different times than we have today — and that’s an understatement if there ever was one.

BawldGuy Axiom: The real estate investment strategies applied for a particular investor must be selected with an intimate knowledge of the economic climate, IRS rules/regs, and the general/specific investment context of the times. A Purposeful Plan using multiple strategies synergistically, is only effective when they’re all applied in the correct context. For instance, a strategy with appreciation as a crucial factor in today’s investment reality would be, um, ill advised. (Captain Obvious alert!)

Back to our regularly scheduled program.

Investors in those days could depreciate property twice as quickly. There were NO limits on how much depreciation they could apply to their ordinary (job) income. There were NO limits to how much they could make in ordinary income in order to make use of depreciation. Those two factors aren’t in play today — period.

Combine those facts with the reality of the cartoonish appreciation of that time. (Mid-late 1980s.) Back when I was tellin’ a very few select clients to purposefully acquire relatively large negative cash flows, their properties were goin’ up in value 8-15% a year, year after year. Even applying the bottom of that range for five years on a half million dollars of property — roughly $1.5-2 Million in today’s San Diego values — they’d see their property values balloon by nearly 50%. At 10% a year, their $500K in property would rise to about $805K, a 61% increase in five short years.

But that didn’t tell the real story, at least not from the investor’s point of view.

What I didn’t tell you earlier, is that in those cases my clients were easily able to buy properties with just 10% down payments! That means that in five years, heck, just three years, at 8% annual appreciation, their $50K beginning equity position was improved to roughly $180K! Put another way, their invested capital, (I’ll use $60K to account for acquisition closing costs.) was literally tripled in just three years.

Their negative cash flow? Completely eliminated in two very concrete ways.

1. Their income taxes were drastically reduced, in many cases by nearly 90%. In essence, they had merely traded income tax dollars for short term negative cash flow dollars. Quoting one of those clients, “Where do I sign up?!”

2. In an inflationary economic environment, rents tend to float up with the rising prices at the grocery store. This tends to add velocity to the elimination of negative cash flow. Go figure. (See? Give Captain Obvious an inch, and he takes a mile.)

BawldGuy Takeaway: No real estate investment strategy can ever be implemented effectively sans the context of the current economic realties, IRS rules ‘n regs, and the investor’s specific financial status quo. Without knowing those factors in rich detail, you might as well blindfold yourself and throw darts at a list of investments, locations, and strategies.

Sadly, that’s almost what so many seem to be doing the last several years. Strategies don’t exist in a vacuum. Economic realities are ever changing. What was a great market in which to invest a decade ago, is now a graveyard for investment capital and retirement dreams.

Thanks again, Dave, for your kind words and excellent questions.

Call me with your questions! I need a fix, and I need it now. My number is 619 889-7100. Your other option is to click the Contact BawldGuy button up top, and write me. Have a good one.

Let’s take a preview of what is coming next week.

Uncle Sam will be looking to borrow 99 billion in 2,5, and 7 year notes on Monday through Wednesday. Look for solid foreign participation to gently push rates down a little further, however, ‘skinny’ participation could cause the opposite effect. (Let’s hope for the former). Wednesday will reveal the existing home sales figures, with Thursday presenting the final estimates for 3rd quarter GDP (Gross Domestic Product). Friday will be mostly a non-factor as the Wall will shot down at 2 Eastern to begin the Christmas Exodus through the 26th of December.

On to the rates:

Currently, SFR can be purchased with 20% down and carry a 30-year fixed rate of 4.875# Duplexes up to 4 Units can be purchased with 25% down and carry a 30-year fixed rate of 4.75% Good luck to everyone trying to finish up their Holiday Shopping this weekend, don’t forget to take a minute to smell the roses, and get ready for the final push next week before the Holiday Break. Don’t forget to give the BawldGuy and I a fix, our numbers are below.

Chad — Office Direct: (210) 483-4962 Mobile: (210) 557-6320

BawldGuy — 619 889-7100

Alright, let’s get right to it. There has been some positive economic data over the past couple weeks that have kept rates from going too far down, but they haven’t really been going up as of late either. The market is very quiet today, but as you may have heard, consumer sentiment is up for the 4th straight week. Consumers feel that the employment picture is improving, as well as our overall economy. I’m going to be cautiously pessimistic, of course, and take a wait and see approach.

From the retail side, Black Friday was a smashing success, even I went out on Black Friday and scored a deal on a couple of things. Stores were practically giving away some items. And a lot of employers are in need of only part-time, short-term labor to get them through the holidays, but time will tell if Uncle Sam’s economy is waking from it’s hangover. But what has been keeping rates stagnant in the face of all the positive eco-news, is the trouble over in Europe. Yup, they are still having issues. The European Union was unable to put forth anything that would convince potential investors, that they can pull out of this mess. This is helping keep rates low as during uncertain times, you guessed it, the safe haven of mortgage-backed securities and bonds looks a lot more appealing than the more volatile stocks.

I wanted to take a minute and suggest that lower isn’t always better. I have had this talk with the BawldGuy many times over and he has made a believer out of me. There are always going to be investors out there, swayed by the unbelievably low rate, over a comparable better deal with a higher rate. Let’s take a look at a purchase of investment property. Your loan size is at $100,000. Now let’s say I am offering you 5%, and my competitor is offering you 4.5%. 4.5%! Wow, not bad, sure sounds a lot sexier than 5%. So ask the lender, how much is this costing me? Lender says, 1% or $1,000. You’re already putting 20-25% down, what’s another $1,000? A mere paltry fee for such an awesome rate. Now let’s dig deeper. The principal and interest at 5% is $537.60 when amortized over 30-years. At 4.5%, the payment is $507.53. A savings of roughly $30. OK, not bad.

So your payment is cheaper by $30 and it’s costing you $1,000. Let’s divide $1,000 by 30…33 months or nearly 3 years. So it will take you almost 3 years to recoup your $1,000 when all is said and done. Here is the question that ends all arguments, and before you answer your question, brush up on the term ‘inflation’. It only took you 3 years to recoup your cost for that sexy rate, right, but the question is, is $1,000 worth more today, or worth more 3 years from now? I close my case. Forego the cheaper rate, and keep more of your money in your pocket. Afterall, if the property is cash-flowing and someone else is virtually making that mortgage payment, what do you care? The proof is always in the pudding.

BawldGuy Here: I’ll go a step further on this one. In Chad’s example, let’s analyze another acid test. Two loans, each at $100,000 — one pays 4.5% interest, the other, 5%. What’s the difference in the time it’d take to pay them off early, if the investor added $1,000 to the monthly payment. At conferences and conventions I’ve won dozens of free drinks and dinners on this one, so don’t answer to quickly.

Here’s how it works out.

The loan paying 4.5% would be paid off in 77 months.

The loan paying 5% would be paid off in . . . wait for it . . . here is comes . . . 77 months.

In other words, it’s a myth that a .5% reduction in interest rate makes a hill of beans difference in how long it’ll take you to pay off the loan. I’ll grant ya, it’s counterintuitive as all get out. But true nonetheless.

Pay the higher rate, save the extra point(s), then enjoy a free ‘n clear property on the same day the other guy does with the lower rate.

I now return the control of your ‘puter to Chad’s rate update.

OK, on to the rates.

Today, an investor can leverage 20% on SFR and walk away with a 5.0% rate.

Also, the same investor can leverage 25% on a 2-4 unit property, and get 4.875-5.0% based on credit situation.

*I have seen a slight break for investors with 800+ credit score as of late…not sure why, just sayin’.

Alright, it’s almost that time, so have an enjoyable, safe, and/or productive weekend, give the BawldGuy a call. Rumor has it he kinda knows his stuff about this investment and Purposeful Planning for retirement. Who knows, he may be able to show you how to retire early.

Wanted to take a quick break to get some information out to everyone after all the reports came out today, and some of it is a bit surprising. The Labor Department announced that the headline jobs number posted less than the expected 95,000 gain that most experts expected, coming in at only 80,000. The surprising bit was that the national jobless rate dropped down to 9.0 for October, which was not expected. Almost at the very second, those inexperienced, high emotion driven investors sprinted out to purchase stocks. Kind of like those runners that sprint out at the beginning of a long distance race, who ultimately run out of fuel early as everyone else ultimately passes them midway through the race.

But the ‘seasoned’ investor knew to wait and see what is going on over on the other side of the ‘pond’ in Greece. The World Financial Leaders again failed to agree on the role that the IMF (International Monetary Fund) will play to resolve the European debt crisis. In short, they still have no plan of action. Unreal, but I’m not complaining and neither should the real estate investor as this has kept rates in check, even with the positive economic data that has been coming to light in our country.

Until this situation is rectified, it will only continue to bolster the strength of the bond markets, and remember where the money goes during uncertain times, you guessed it; bonds and mortgage-backed securities. They ain’t sexy like stocks, but they are a safe investment well suited for times like now. I think we will continue to see the current trend through early next week as there are rumors swirling about that there could be a shift in power as the Greek Parliament will keep their Prime Minister Papandreou in power, but not because they think he can get the job done. But rather he supposedly has convinced the ministers to voluntarily hand power to a coalition government sometime next week, which news doesn’t bode well for stocks.

Next week, Uncle Sam will be looking to borrow about $72 billion with offerings of 3, 10, and 30 year notes, Tuesday through Thursday. This ultimately will have little effect on the direction of mortgage rates, especially if the Euro-situation is still going on.

And now the rates. Investment Single-Family can still be leveraged with 20% down and Investment 2-4 units can be leveraged for 25% down with the following rates:

SFR: 30-Yr. Fixed – 5.0%
2-4 Unite: 30 – yr. Fixed – 4.875%

Everyone have a great and safe weekend, and be ready to Get ‘er Done next week!

Wanna talk with Chad? (210) 557-6320

Another stellar day to follow up a not so stellar day for mortgage backed securities. Funny how this short-term profit taking works almost like clockwork. Yesterday was like “Déjà vu all over again”, to borrow a phrase from the great Yogi Berra. But you may have heard that once again, a deal had been struck to help ailing Euro Banks and their debt crisis. Investors were giddy, markets were rebounding, stocks were flying off the shelves again, but hold on, “not so fast” (Lee Corso), a deal indeed had been struck, but there is no plan in place yet for the deal! Investors are once again, concerned that this may not be over yet, thus causing fiscal concern over the state of the ‘Euro Zone’ economy, and thus the U.S. The beneficiary of this not-so-great economic news? You got it, MBS and Bond market. Remember, as I have always told you, during uncertain economic times, investors will put their money into safer assets such as mortgage-backed securities and bonds. So MBS are having their day, and it’s almost completely wiping out the losses we saw yesterday as rates jumped up over ? percent. Mortgage backed securities are currently up 14/32 and the Dow is up 20 points and the NAZ just barely hanging tough at 1% on the board as I write this.

The statistics: Consumer income edged up .1%, a potentially positive note, but consumer spending went up last month at a .6 clip. How could that be? Simple, consumers are dipping into savings, and if you are spending more and your income is going up less than you are spending, it doesn’t take a genius to see that this is not sustainable for very long. The saving rate fell to 3.6% which is the lowest level of savings our economy has seen since December of 2007.

Why am I boring you with these numbers? Because it is just more evidence that we will see rates continue to be low for quite some time. True, there will be glimpses of positivity during the coming year, but they are likely to be brief, and now is still a great time to take advantage of the current mortgage rates.

Current Mortgage Rates: Assuming well-qualified individual with 20% to throw at a Single-Family Home for investment, can leverage at 5.125%. Same assumptions for 2-4 Unit Investment Purchase: 5.0%.

That’s all I got, so in case you need a reminder, Halloween is here in 3 days, so if you haven’t started carving your Pumpkins, you best get a move on and Get ‘er Done!

Here’s my number: (210) 557-6320

Since we all know consumer spending makes up almost 70% of all economic acitivity in the U.S., and the data released today suggests domestic growth is showing signs of life, you are going to see investors purchase stocks in favor of the bonds, and the MBS and that is never a good recipe for lower mortgage rates.

So are rates going to go through the roof now? No because there are still two very important components, the ‘wild card’ if you will, unemployment and the European Debt Crisis. With both of these unresolved, this will help to counter the positive data for the economy. Not enough to counteract completely, but enough to keep the interest rate rise, subtle.

On to the rates!

SFR with 20% down can be leveraged at 5.125%
2-4 Unit properties with 25% down can be leveraged at 4.875%

That’s it for me, everyone have a safe and fun weekend, rest up, and Get er Done!

BawldGuy Here: Need to speak with Chad? Call him at (210) 557-6320. Tell him I sent ya.

OK, we are having a pretty good day as far as mortgage rates are concerned, as mortgage backeds (the driver of mortgage interest rates) are posting a +10 reading. They have been as high as +19 earlier this morning, but seem to be holding just fine. There’s been a lot of activity at the Wall this week and today is no exception. Now some thought that the recent climb in rates was a sign of the American Economy waking up from it’s slumber. But today it hit the snooze button. Turns out that all of that selling going on in the bond market, and the purchasing of stocks, was not a reflection of investors having confidence in the economy, it was merely a market correction.

Remember from my last post, typically when Wall Street has a large sell off day and a couple hundred point drop in the Dow, the market is then ripe for a correction — and investors can’t resist buying up stocks at such bargain prices. Right now investors are disenchanted at the economy’s poor performance, so they would rather make quick, short-term profits by purchasing stocks and most times it’s at the expense of the bond market, but quickly turning around and selling them as soon as there is potential for a minimum profit. It’s risky, but it’s the only way you can really make any profit during a slow economic time like now. Not for the faint of heart, or an unseasoned investor.

So why is the Dow currently down 157 points and the NAZ following suit at minus 43? Simple, the numbers released today by the Commerce department. This morning, they released their Personal Income and Spending report, which showed that incomes actually fell for the first time in 2 years. Additionally, income also fell by .1% last month, which was the first decline since October 2009, while spending rose at only .1%. That’s not a very high number, for your information. The moral of this story is straightforward — with income down and spending light, there will be very little pressure to become concerned about interest rates rising. With those sluggish numbers, Mr. Bernanke, you won’t have to worry about inflation any time soon. (If you’re new to my posts, I have always explained that the Fed Chairman, Ben Bernanke feels that it is easier to fight inflation rather than fight recession)

BawldGuy Here: I’m also on record multiple times pointing out Uncle Ben’s proclivity for fighting the potential for deflation vs inflation. I’ve personally always believed that deflation was a far more threatening potential result of this current economic downturn than was inflation. Time will tell.

Alright, onto the rates for today:

Single-Family Residence at 20% down with a 30 year fixed rate: 5.0% ($0 origination fee)

Duplex, Tri and Quads require 25% down with a 30 year fixed rate: 5.0% ($0 origination fee)

Ok that’s it from me so have a safe and prosperous weekend!
I typically sound off with “Go Get Em”, but being down here in Texas, I’ve grown quite fond of Git ‘er Done!

You see, what most people fail to realize with their SD plans is that in the eyes of the IRS, it is an entity to itself. If established correctly, you can make investment choices for your plan, but you can only serve in this capacity. You cannot personally benefit from your relationship to the plan, NOR can your plan benefit from its relationship to you. This impermissible “relationship” (if it were to occur) is called “self-dealing” and your plan is not allowed to enter into this type of transaction. If it does occur, it triggers a Prohibited Transaction within the plan and now your plan is potentially subject to penalties and taxes.

This type of Prohibited Transaction – “self-dealing” – can typically occur when an individual with a SD IRA or 401K takes out a loan for an investment. For example, let’s say that John is purchasing a property that is selling for $100,000 and he wishes to use $50,000 from his SD plan and take out a mortgage for the remaining $50,000. His plan is to title the property in the name of his IRA or 401K (or an affiliated LLC owned by the IRA or 401K), and he will use incoming rental income to repay the loan.

But, and this is a big BUT, when John goes into his local bank and wants to secure a loan for this investment with his IRA or 401K, John may not be familiar (and I can guarantee you his bank will not be familiar) with IRS regulations pertaining to this subject matter. While the plan can secure a loan, it can have nothing to do and have no relationship with the account holder. Think of it this way, you (the account holder) are merely acting as the trustee, manager, etc. of the plan, and are making investment choices for the plan. To re-state, you cannot benefit in any way from your relationship to the plan, nor can your plan benefit from its relationship to you. So, now, John goes goes into his bank to request and secure a loan. Obviously, since the bank is unaware of many IRS regulations, it will require John to complete an application and, amongst other things, credit and employment history, etc. is taken into consideration for a decision on the loan. But, for the uneducated IRA or 401K account holder, they may not even be aware that they just fell into a Prohibited Transaction by completing the loan application and extending information related to their personal credit and job and wages history. Why? Because they now extended such information to the bank for the securement of the loan when, most likely, the bank wouldn’t have approved the loan without this information (again, remember, the plan must qualify for the loan on its own merits).

This now leads to the obvious question of how does your plan qualify for a loan when, unlike an individual, it has no credit history (most likely) or job? This is where the concept of a “non-recourse” loan comes into play. So, let’s examine what a non-recourse loan is so our good friend John who has the SD plan can purchase the property and carry a loan on the property….again, all through the SD plan.

Non-Recourse Loan

In the simplest of terms, a non-recourse loan is a loan whereby the SD IRA or 401K account holder is not personally liable for the repayment of the loan. The loan agreement allows no “recourse” against the individual personally or against any other funds within the SD plan. In the unfortunate instance of a default or disclosure, the lending institution can only pursue the value of the property and cannot pursue other assets owned by the account holder or the IRA or 401K. As I like to say in layman’s terms….if the property goes south, they (lender) cannot come after you. They can only go after the property.

Someone might ask, by the way, about the pros and cons associated with non-recourse lending. There can be many but I will give you one PRO and one CON that affects anyone securing a non-recourse loan. The PRO is that, as mentioned, if the property goes into default, the lender cannot come after you personally or attack any other assets of the plan. The one CON is that, typically, a non-recourse loan will hit you for an additional 1 – 3% of interest over a conventional loan.

Now that we have covered a few basics, let’s throw out some typical questions that can come up from someone interested in a non-recourse loan.

Who is Eligible for a Non-Recourse Loan?

Typically, any individual who has at least 30 – 35% of the purchase price vested as “down” money for the property purchase. This % can definitely vary by state.

Is There a Typical Down Payment Required?

Typically, 30% of the purchase price is the lowest amount that will be needed to secure the non-recourse loan. Of course, you can always come in with more of a down, but you will typically need at least 30% down.

Are Non-Recourse Loans Available in All States?

Yes, while non-recourse loans are more difficult to locate than conventional loans, not only are they available in all 50 states but you can find non-recourse lenders who will lend for all 50 states. Please remember, especially in today’s wild economy, that due to economic realities, securing a non-recourse loan in one state vs. another may require more or less vested by the plan.

What Type of Loans are Available?

Anything from a 5 year ARM to a 25 year fixed.

Are There Typical Properties that can be Purchased through Non-Recourse?

Typically, you will be looking at such loans for single family detached residential, warrantable condo’s, PUDs, duplexes, 4-plexes and multi-family. Ineligible properties typically include: residential with large acreage, raw land, farms, rural properties, manufactured or log homes, non-warrantable condos, condo-hotels, co-ops, time shares, hotels, senior or assisted living homes, non-franchise restaurants, entertainment properties, mini-storage facilities or units, and commercial property.

Okay, I Might be Interested, but how long does it take?

From the date you complete an application to the closing date, you should allow at least 45 days. Saying that, can it happen sooner or later, yes.

Scraps (my layman’s term for “other” issues) -– Of course, the lender may have other conditions for approval and documents needed to offer and issue the loan. This information is only intended to be educational and you must, obviously, contact the prospective lender for all information related to applying and qualifying for a non-recourse loan.

To Recourse or Non-Recourse?

In using your SD plan to its fullest, that may be a question you will encounter. As you can tell, there is no set answer. And, you know I am going to say this….but, even if there was a set answer, the purpose of this blog is to educate you on the process. Neither myself or PGI Agency, Inc. provides tax, legal, investment or financial advice. So, as always, you should review such important questions and tax considerations with your expert in the field. Hopefully, this gave some insight into the area of “non-recourse” lending and what you might consider if you are establishing a SD IRA or 401K for investment purposes.

BawldGuy Here: When John says ‘Recourse or Non-Recourse’ in the context of your self-directed qualified plan acquiring real estate, he’s not implying, nor should you infer, that there’s a ‘choice’ between the two. There isn’t — never — ever. It’s non-recourse or your plan is buying the real estate for cash. It’s one or the other, there’s no middle ground.

Also, though John makes the point very clearly about the lender only using the property as security, and not your personal credit worthiness, there will be a personal credit check. The reason? They need to ensure the borrower has no government tax liens recorded against them. Those would have priority over their loans.