Commercial Real Estate Loans

Thousands of commercial loans are closed every day as people raise money for new business ventures, for re-investing in their businesses, and for buying existing businesses or pieces thereof. These loans are secured with collateral and terms concerning property rights and penalties in case of default. A loan's risk is linked, of course, to the borrower's likelihood to not pay it back, affecting the interest charged on the loan.

Commercial real estate is any piece of real property that is used exclusively for business purposes. This includes warehouses, hotels, resorts, golf courses, storage facilities, office towers, malls, industrial parks, parking lots, etc. (any place where goods or services are sold). Loans for commercial real estate ventures are usually given different terms than those used for residential real estate transactions.

If you are using your IRA to supply loans for commercial real estate, especially international real estate, you should have a self-directed IRA so that you can make payments on expenses incurred during the course of the investment without triggering big fees and while staying in compliance with the law. IRAs are subject to different laws than other sources of capital but most of the restrictions placed on their use are products of the IRA providers.

Providing Loans Versus Buying Commercial Real Estate

When you purchase property within an IRA, you must pay all expenses associated with that property from the IRA. This means every light bill, every painter, every plumber, the management company, the real estate broker, and every fee must be paid directly from the IRA. With a self-directed IRA LLC, this is simply a matter of keeping the checkbooks straight but it does take time. Providing loans usually requires you to pay fewer such expenses and if the loan is so structured you might end up with the property anyway if the borrower defaults.

Written By Scott Janko, The National Association of Financial and Estate Planning (NAFEP)

For more details on the Self Directed IRA -ICO^SM Click Here.
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