How to Get Nonrecourse Private Hard Money Loans

Both real estate investors and hard money lenders want to reduce risk.  One way for an investor to do that is to create an LLC or Corporation to do the real estate transaction.  This is still an advantage for a borrower who relies upon a private hard money lender due to a low credit rating. This type of loan can be a NON-recourse loan which means, that makes the entity, rather than you personally, liable for the borrowed amount.

Some private hard money lenders also prefer this type of transaction because the “entity” is clean, meaning it has no liens, judgments, or other issues that could possibly cloud the title of the property.   Another way for an investor to set up a non-recourse hard money loan is to do the transaction through a self-directed IRA, which also defers the tax on profits and can be an excellent way to build retirement. A 3rd way for an investor to set up a NON-recourse hard money loan is to set up a title holding trust or a land trust. Remember, private hard money lenders are asset based lenders.  There are many ways to get around the need for putting cash into the deal, including cross-collateralization, pledged notes guaranteed by other properties, buying right at the correct LTV, solid exit strategies, pocket buyers, etc.

The entity type you choose for your deal can give you greater flexibility.  For example, an self directed IRA can be “assigned” a contract by adding the words “and or assigns” in the purchase contract or making the offer on behalf of a self directed IRA.  The techniques offers not only asset protection but also for deferring income tax on “flip transactions” because profit goes back into the designated IRA.

Real estate investors seeking deals with limited recourse or non-recourse should consider the options connected with setting up practicable investing entities.  These entities cost little to set-up and give a real estate investor a considerble amount of protection and versatility in investing strategy.  It is not unusual for an investor to set up a different entity for each different property. 

Investors have learned to create flexibility in thier offers and will use an “assignable” clause in the purchase contract to acquire the property so as not to create a red flag for the seller.  Rehab hard money lenders frequently will consider non-recourse in the commercial segment of the real estate market for income-producing properties, particularly.