Using Self-Directed IRAs to Invest in Apartment Buildings
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Recent corporate data has pointed to a strong market for apartment buildings in the near future, and individuals are already asking about utilizing self-directed IRAs to invest in these commercial ventures.
The results of the National Multi Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions reflect strong sentiment surrounding this sector of the commercial market. "Market conditions improved across the board, even from the rather strong level of three months ago," NMHC chief economist Mark Obrinsky said in the statement. "Demand for apartment residences - and apartment properties - continues to grow. We anticipate this increasing further in the coming years due in part to the large number of younger households moving into the housing market and a greater preference shown for renting."
The market expert added that robust expansion in the sector has helped to draw capital, but that the latest survey "finds that capital is largely targeted at top-tier properties in core markets and not widely available throughout the U.S. Fully 79 percent of respondents said capital was constrained either by property type, by market or both."
Individuals can benefit from the appreciation that the sector for apartment buildings might enjoy by using self-directed IRAs to invest in the commercial structures. Investors who want to utilize leverage to execute this strategy will require a non-recourse loan, in order to make the purchase. These loans do not require a personal guaranty from the borrower.
A non-recourse loan is a contract in which the issuer does not have any recourse against the borrower in the instance of default - except for reclaiming the property that the loan was for. This makes the contract different from a traditional loan, in which the lender can seize the collateral, and also seek damages, through collection agencies. Debt agreements like this are usually made between investors and private lenders.
Investors who utilize these loans to purchase properties could dramatically improve their returns, since they are making use of leverage. Another benefit of utilizing non-recourse loans is that an individual can use the same amount of cash to purchase various properties using a self-directed IRA, instead of one building.
If you're interested in learning more about real estate investor trends, please peruse our report, How and Where Real Estate Investors are Using Self-Directed IRAs. For more information on investing in real estate with a Real Estate IRA or how to make the purchase with a non-recourse loan, please contact us.