What is Non-Recourse Financing?
Non-recourse financing is a loan that works on the principles of having collateral; in this instance it would by real estate, in which the borrower is not personally liable. This means the loaner is loaning on the property in question. It is the only way to leverage dollars from your retirement account for purchase of real estate. The majority of lenders are commercial banks, life insurance companies, and commercial mortgage-backed securities. The lending bank is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower. These type of loans are characterized by high capital expenditures, long loan periods, and uncertain revenue streams. Growth Equity Group eliminates any uncertainty for our investors with pre-approved renters and due diligence in each market we attach our name to.
What’s the difference between recourse and non-recourse financing?
In recourse and non-recourse loans, the lender is entitled to seize the property if said borrower should default. The difference between the two is that in recourse, if the borrower still owes money after the seizure of the asset, they will still have to pay the remaining balance. In non-recourse financing the borrower is not obligated to pay the remaining balance if their asset has already been seized. The IRS expresses in detail the process of foreclosure and seizure resulting from defaulting on a non-recourse loan. Since you are not personally liable for repaying the loan(the loan being based on the asset), the amount realized is the outstanding debt you made immediately before the transfer.
Even if the fair market value of property is less than the outstanding debt you are still not liable for the remaining the balance. In non-recourse financing, regulations are put in place for the borrower to meet the required monthly repayment of the loan and to finance the upkeep of improvements and maintenance.
Non-Recourse Real Estate Financing is right for me. What’s next?
As soon as the lender and borrower agree to a non-recourse loan, a third party company will take control of managing and legalities of the loan. This arrangement is common for across the board for lenders operating in the non-recourse loan space. Typically most lenders only offer recourse financing, as they are taking a risk on the borrower, but Growth Equity Group has non-recourse financing in place for all its available properties. More traditional avenues for financing are unavailable to the self-directed investor because those mortgages are based on individual qualifications and the recourse for those mortgages are to the individual. In this case it isn’t the individual purchasing the asset it is their entity either LLC, self-directed account, etc that would be purchasing the asset therefore the mortgage can only be tied to the asset itself with the recourse being solely on that asset. Growth Equity Group is the only company in the country with pre-approved non-recourse financing on every one of its properties.