IRA Sales Making up for Lost Ground
By Jennifer D. Meacham
RISMEDIA, June 2008-RE/MAX agent Doug Casale and his power team were closing a clip of 900 homes per year until they hit a snag in late-2007. “Our clients were still interested in homes; they just couldn’t find the funding,” says Casale. “So I remembered about the concept of investing IRAs in real estate.”
Now, before putting his properties on the market, Casale runs them by his loan officer at North American Savings Bank. NASB is a Grandview, Missouri-based lender specializing in IRA-held non-recourse loans (www.iralending.com).
“All of our IRA-targeted properties are now preapproved by NASB,” Casale says. “Our clients already know how much their IRA needs to put down, and how much they have to have in their IRA’s reserve.”
Casale says the typical reserve on an IRA-owned investment property is 5% for single-family homes and 10% for multi-unit or commercial properties. NASB also requires a minimum IRA down payment of 30% of the purchase price for residential and 50% for commercial properties.
Casale also made an intriguing change to his business plan to appeal to retirement-account investors. His Vancouver, Washington-based real estate firm, Investments Dynamics, now works with builders to guarantee the rent that investors will get for buying a property that’s prime for rental.
“If [the buyer] can’t get the rent we say in the prospectus that the property can get, then after 30 days of advertising they can drop it to, say, $800 from $1,000 and we’ll compensate [the investing IRA] for the difference,” says Casale. Compensation can last for as long as two years.
“Once,” Casale says, “we had to compensate someone $50 a month for an Americans with Disabilities Act-compliant unit that took a long time to rent. I thought it would be easier to rent, but it wasn’t. Other than that, this guarantee hasn’t hurt my profitability at all.”
Casale also offers his properties through affiliate relationships with Keller Williams Realty and RE/MAX. “I’ll pay their agents the standard 3 percent,” he says. “They can access my website (www.HotRealEstateInvestments.com) and sell their property anywhere they want in the United States.”
Though his 900-properties-sold-per-year clip had slowed to less than 400 at the current pace, IRA sales are starting to make up for lost ground, Casale says. “If I wasn’t introduced to IRA funding, my business would pretty much be defunct because of the financial crisis,” Casale says. “The new funding mechanism has just been terrific for my business and a real eye opener for my clients.”
What is a Non-Recourse Loan?
The NASB website reports that the Internal Revenue Service does not allow individual self-directed IRA account holders to be personally involved in IRA transactions as a loan guarantor. Long offered for commercial properties, non-recourse loans stipulate that, in cases of default or foreclosure, lenders can look only to the property as the source of repayment. As such, the value and cash flow of a property-rather than the IRA account holder’s personal credit-determine whether or not a lender opts to make the loan. Additionally, the IRA account holder is not personally liable for repayment.
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