Commercial Real Estate Loans

Written by Johnny Kitchens
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The loan industry is a massive industry where billions of dollars change hands every year. A large portion of those loans go towards real estate, both commercial and residential. The business of lending money is all about risk. What are the chances that the money loaned will be paid back? What are the chances that the money loaned will only be recovered through legal channels or collection agencies? Foreclosures and liens are a big part of that puzzle.

When lending money for real estate with IRA funds, the possibility exists to protect those funds from default. If structured properly, the real estate purchased with the borrowed funds can automatically be absorbed into the IRA if the borrower defaults. Since IRAs can own real estate, this is an excellent hedge against defaulting borrowers. Though the process can be lengthy and difficult, some IRAs actually gain more by absorbing the property than by being repaid.

Lending IRA funds is not an unrestricted enterprise. Money cannot be loaned to relatives of the IRA owner. Neither can they be loaned to businesses where the IRA owner owns a controlling interest. IRA funds are supposed to be for retirement and that is how they maintain their tax-advantaged status. IRA funds are not supposed to be used for immediate benefit to the IRA owner. The IRS imposes stiff penalties for not following the rules.

Eligible Types of Commercial Real Estate

Most types of commercial real estate are eligible. This includes office space, golf courses, hotel and resort properties, tree farms, fisheries, and more. The list is best defined by what is not allowed. The biggest class of real estate that is not allowed is foreign land. IRAs can own foreign stocks but not foreign real estate. This means an IRA holder can invest in a company in China but it cannot directly own the land on which that company sits. The holder can, however, own a company that owns the land.


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