Oceans Lending LLC

Self-Directed retirement plans grant investors access to a vast number of investment opportunities. Something that investors may not be aware of, though, is the self-directed account’s ability to leverage investments using non-recourse loans. In this article, we will discuss the definition, benefits, and specifics of non-recourse loans as they pertain to self-directed retirement plans. 

So why would someone want to utilize a non-recourse loan in their self-directed retirement plan? What benefit could it provide you? First, non-recourse leverage can significantly expand your investment options. Using debt can grant your retirement plan access to assets that it otherwise would not have been able to invest in or purchase. Real estate is one of the most common assets purchased using non-recourse loans in retirement plans. If your self-directed retirement plan is unable to cover the cost of the property in its entirety at closing by only using equity, utilizing a non-recourse loan to raise funds necessary to purchase the property is a way to accomplish that goal. 

 A second, and closely-associated benefit of a non-recourse loan within your self-directed retirement account, is asset diversification. Imagine you have $150,00 in your self-directed retirement plan. You want to purchase a property worth around $150,000 with your IRA but you do not want to spend the entire balance of your retirement account to obtain the property. You take out a $75,000 non-recourse loan in the name of your retirement account to help purchase the property. By utilizing the powerful tool of a non-recourse loan in your retirement account, you can free up funds in your IRA to invest in other assets to add diversification to your portfolio, which is a vital investment strategy and your portfolio’s best friend. 

 A non-recourse loan is a powerful tool that self-directed retirement plan holders can use. They can use this type of loan to borrow money or leverage their investments. A non-recourse loan is a type of leverage where the lender only lends against the asset purchased by the debt. Financing with non-recourse loans means that in the event of default, the lender cannot seize any assets held by you or your retirement plan. Lenders can only seize the asset for which you are borrowing the funds to purchase as you have provided no personal guarantees. For example, non-recourse loan collateral would be the property funded by the loan. This provision is essential for self-directed accounts, as it allows the retirement plan to remain in compliance with IRS guidelines while still utilizing leverage to obtain investments. More on that later.