Commercial Loans Blog

Commercial Loans, IRA's, and the Personal Guaranty Issue

Posted by George Blackburne on Mon, Mar 4, 2013

Let's suppose you have a self-directed Individual Retirement Account, and you are very bullish on commercial real estate (see my previous blog article).  Let's further suppose that you find an attractive $200,000 industrial condominium in a primary market (say San Jose, California or Austin, Texas).  You decide to buy the industrial condo with your IRA and lease it out to some independent third party.

So you go down to the bank and apply for a $130,000 new conventional commercial first mortgage loan.  You plan on putting down $70,000 (35%) from your IRA.  The bank comes back with an approval on your loan, subject to, of course, your personal guaranty.  All is good and right in the world.

Oops.  Did you know that if you personal guaranty your IRA's loan, it constitutes a prohibited transaction?  Yup.  You can't do it.

Okay, so what do you do?  Simply ask your bank to waive the personal guaranty requirement.  Uh-oh.  Your commercial bank will probably say no.  Banks have always been reluctant to make non-recourse loans - meaning they cannot go back after you for a deficiency judgment.  And since the Great Recession, they are even more reluctant.

Here's one solution.  Apply to Blackburne & Sons's Realty Capital Corporation.  As a private money lender, we will gladly make you a non-recourse loan.

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Topics: IRA's and Personal Guarantees