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Questions and Answers
1. How Can I use my IRA funds to invest in real estate?
You can pay cash or use a non-recourse loan on any piece of real estate that is not for personal use.
2. What is a Non-Recourse Loan? A non-recourse loan is one in which the IRA/SEP account holder is not personally liable for repayment of the loan. the date we receive your loan application and your purchase contract.
3. What type of loan programs are available?
Both ARM and Fixed rate loan programs are available for non-recourse financing.
4. Can properties be held in a LLC?
Yes. Discuss the LLC structure with your legal tax advisor or an IRA SEP administrator.
5. What types of rental properties are eligible for Katz Mortgage Team’s non-recourse financing?
Single family detached residential, warrantable Condo's, PUD's, duplexes, 4-plexes, multi-family (5 or more units), commercial property including retail, warehouses and office buildings.
Ineligible Properties include:
Residential with large acreage, raw land, farms, manufactured or log homes, *non-warrantable Condos, Condo-Hotels, Co-ops, Timeshares, hotels, senior or assisted living facilities, non-franchise restaurants, entertainment properties, mini-storage
*Condominiums: Condos must meet the following minimum criteria to be considered Warrantable: The project building must be 100% complete, including common areas. The units within the building must be 60% sold and 33% of all building units must be owner-occupied or 2nd homes (versus tenant occupied). Condos not meeting these criteria are not eligible under our non-recourse program.
6. Is there a prepayment penalty for Katz Mortgage Team's IRA Non-Recourse loans?
No, there is not a prepayment penalty. You may sell or refinance the property at anytime without penalty.
7. What are the income requirements for rental property?
Typically, the financed property must generate sufficient Net Operating Income (rents minus operating expenses) to exceed the debt payments by 20-25%.
8. How can I apply for a Non-Recourse loan?
Click here, http://www.katzmortgageteam.com/app.html, print and complete the application, then fax to 678-623-0248.
9. What are loan options offered by Katz Mortgage Team?
Katz Mortgage Team offers a unique financing program designed for the non-recourse financing requirements for IRA investments, and the application process is easy. Loan approval is generally within 48 hours of receipt of a full and complete application, and is subject to appraisal and verification of IRA funds for closing.
Katz Mortgage Team will quote interest rates on a case by case basis, on the basis of the collateral type and down payment.
10. What documentation is required for a loan approval?
1. Completed loan application - visit http://www.katzmortgageteam.com/app.html for a copy.
2. Current detailed Rent Roll or copies of signed leases (leases or rent roll for currently unoccupied properties are not required).
3. Most recent asset statement verifying IRA assets for purchase and reserves.
4. Purchase/Sales contract, signed by the IRA account holder and the administrator. The contract must show the buyer to be in the name of the IRA or LLC.
5. Acceptable real estate appraisal for the property to be financed. Appraisal for required at the time of the loan application before Katz Mortgage Team will order the real estate appraisal.
11. Why Haven't I Heard About This Investment Opportunity Before?
The answer is simple: even though there aren't any rules to keep you from investing IRA funds in real estate, it is downplayed by many banks and other administrators such as stock brokerage houses and insurance companies because those banks and insurance companies only make money by selling their own products to an IRA account holder. It is not in their financial interest to have IRA money tied up in real estate as that money obviously can't be out there buying stocks, bonds, or other investment vehicles.
12. Are There Any Risks? What About Liquidity?
As with any investment, there are risks. However, when investing IRA funds in real estate, a minimum-risk return is about 12 percent. Such low-risk investments—low-loan-to-value first-position notes, for instance-have about zero chance of going awry. It is highly improbable that you will lose your interest much less your principal.
Moreover, it is also highly possible to raise the return to 20 percent and still keep the risk relatively low, and you can even boost it to 25 percent or even 35 percent if you’re willing to take a moderate risk. It's true that moderate-risk investments, such as the purchase of real estate through LLCs, can put your profit, as well as a portion of your principal at risk, but ample due diligence can make even these investments fairly safe.
It's true that real estate is not as easy to turn into cash as stocks are. However, in a rapidly moving investment vehicle such as the stock market, liquidity is extremely important because you have to be able to bail out quickly when your stock takes a nosedive. But when you are in a slower-moving product, such as real estate, you have much more time to get out if needed. The real estate market telegraphs its moves well in advance, so if you are attuned to the market, you will have ample time to liquidate.
13. What can I NOT do with Real Estate using IRA funds?
You cannot directly or indirectly buy real estate from a "disqualified person". That begs the question, who is a disqualified person?
- The IRA owner;
- The IRA owner's spouse, descendant (e.g., son), or ascendant (e.g., mother);
- Spouse of a descendant of the IRA holder;
- A fiduciary of the IRA or person providing services to the IRA (e.g., the trustee or custodian);
- An entity at least 50% of which is owned (or at least 50% of the beneficial interests are held) by a combination of the above (e.g., if you and your spouse own 50% of an LLC, that LLC is a disqualified entity with respect to your IRA);
- A 10% owner, officer or director, or other highly compensated employee of such an entity.
You cannot have your IRA enable an investment for yourself or another disqualified person. In other words, if the IRA's investment is deemed essential to accomplishing a transaction in which both you and your IRA invest, then the transaction would be considered a prohibited transaction.
As a real estate investor, you cannot live in the house until you retire.
You cannot use it as collateral for any loan-not even a loan on the property you're buying with your IRA
Your IRA funds cannot purchase a real estate asset and then have a disqualified person use it while it is in the IRA. For example, you cannot buy a vacation home and use it partly for personal use, even though you might rent it to unrelated persons the rest of the year.
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