subject: Purchasing Land in Your Self Directed IRA with a Nonrecourse Loan [print this page] Purchasing Land in Your Self Directed IRA with a Nonrecourse Loan
The flexibility of a self-directed IRA is that you are able to purchase any type of real estate, from an office block to an undeveloped plot of land. IRAs and real estate are lucrative combination. One option people choose is to purchase a piece of land cheaply. You then have two main options: you can either sell off this plot via your IRA for more money than you purchased it for or use your IRA to develop the land yourself. If you then decide to put it on the market, the profit you make will go directly into your IRA. The main advantages of investing in such a piece of real estate are:
If you opt for IRA and real estate, there are a number of prohibited transactions that you should be aware of when dealing with your land. You cannot self deal or do the following:
IRA and real estate is a good investment option; however, it is worth contacting professionals in order to ensure that your dealings comply with the rules and regulations.
If you have to finance your land purchase, you may require a nonrecourse loan. This is because all capital used to buy and develop your land must come from your IRA. Most places within the United States are non-recourse states. The mortgage you use for your primary residence must be a nonrecourse loan. As a borrower, you are not personally liable for any more than the land was worth when you purchased it. Your creditors can take your land but cannot ask for further money, even if the value of the land does not add up to the amount you borrowed.
Nonrecourse states each hold their own individual anti-deficiency statutes which protect you as the borrower. These states include: Alaska, California, Idaho, Arizona, Texas, Washington, Utah, North Dakota, Minnesota, North Carolina, Connecticut and Florida. It is important to take into consideration that different nonrecourse states abide by different laws. For example, certain states, including California, stipulate that you are only protected by non-recourse laws if your loan is a purchase money loan whereby the buyer borrows from the seller as opposed to a bank. In addition to nonrecourse states, you should be aware that there are one-action states, including New York, Montana, California, Idaho, Utah and Nevada. Here, the lender is entitled to one lawsuit in which to collect their debt.
