Mark J. Kohler explains non-recourse loans, where lenders can only seize the collateral, not your personal assets. He covers three uses: real estate held in an LLC, self-directed IRAs that can leverage 40% down to buy multiple properties, and corporate credit lines for S-corporations without personal guarantees.
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Hi, Mark Kohler here with another tax and legal tip talking non recourse loans. Now this is unique feature of types of loans that can help you out strategically in business and real estate. First let's talk about what a non recourse loan is and then where we can use it in two or three instances. The non recourse loan is really a feature which allows the creditor or doesn't allow their creditor to come after the borrower. So for example, if I borrow money from you and I say I want it non recourse, you can't come after me. If I default, you can only go have recourse or go after the asset that may secure the loan. So maybe I give you the title to my car, you can go after my car and repossess it, but you can't come after me personally if my car doesn't satisfy the loan when I default. That's a non recourse loan. They do not have recourse against the borrower as an individual. Now let's talk about where you might see a non recourse loan. The most common is in real estate. Where if you've seen my videos before, we have our operations side and we have our asset side. Watch those other videos. You'd love this method of analyzing your business. Over here you might have a piece of real estate with a bank and an LLC with a borrower. Well, in a typical loan you might see the borrower guarantee the loan. But in a non recourse loan, the bank only has a first trust deed against the property and they can't come after the borrower themselves. The trust deed or lien against the property is their only recourse. It's non recourse against the person. The second area you might see this in real estate and I love it, is with IRAs or retirement plans. Down here you might have an IRA or self directed retirement plan that sets up an LLC and buys real estate and can still get loans to build the portfolio of the ira. The IRA can own real estate and have a loan against that. Most non recourse lenders are going to ask for about 40% down and want to see about a 10% cash reserve inside the LLC. But hey, that's 50% of the capital in an IRA. And, and that means if I had 100 grand in an IRA, I could buy two properties using 40% down on two properties and have a 10% reserve for both. So instead of buying one property with 100 grand, I could buy two properties worth 200 grand. With a non recourse loan. The second area you might see a non recourse loan is in corporate credit. So here's your S corporation and here's the owner of the company. I line of credit with corporate credit means the bank provides the line of credit and may only just give that line of credit to the company without any recourse against the owner of the company. Most corporate credit strategies involve working towards this where the loan is in the name of the company and without you as a guarantor. Now it takes a long time to get there and watch some of my other videos on corporate credit. Study up well on that, but this is what a non recourse loan is all about. In summary, non recourse lending is a reality. It's for real and there's certain banks out there that will again help you in real estate or in the corporate credit strategy. Build that line of credit off your credit score, off your FICO score. So think about it. It could be a good fit for you. Thanks for listening and I hope that information was helpful. And let me speak from the heart here. I've been talking about topics like this for 1015 years. I'm a CPA attorney, best selling author, radio show host and I am passionate about helping small business owners save taxes, build wealth and protect it. Please check out the link right here. Download my free ebook on 10 Common Mistakes Small business owners make in the tax and legal arena. Also check out my social media links here. I've got Daily Tips, a weekly blog radio show every week. This information is free and I'd love to help you. Click below. Find out more about me and thanks for listening.
