Welcome back to another episode of the IRA Cafe podcast! Join Kyle Moody, Business Development specialist at American IRA, as he sits down for a highly informative discussion with Ryan Hughes, CEO of Non Recourse Loan and a seasoned banking and lending expert with over 25 years of experience in the industry. In this episode, Kyle and Ryan delve deep into the intricacies of non recourse loans, especially in the context of self-directed retirement accounts and real estate investing. The conversation highlights the critical differences between conventional loans and non recourse loans, explores how investors lacking full cash in their IRAs can still leverage property purchases, and examines practical considerations for both new and seasoned self-directed IRA investors. Ryan shares his professional journey, why he’s passionate about helping clients build generational wealth, and how his specialized knowledge bridges the gap between traditional banking and self-directed retirement lending. The pair walk through how non recourse loans work, factors that affect qualification, and important tax considerations like UDFI (Unrelated Debt Financed Income). Ryan also addresses common questions, practical steps for investors, and reveals the unique client-focused approach that sets his company apart.

Key takeaways:

1. Understanding Non Recourse Loans: Unlike conventional loans, non recourse loans do not require personal guarantees and are essential for self-directed IRAs purchasing real estate. This means only the property owned by the IRA serves as collateral, not the individual investor’s personal assets, which is crucial for IRS compliance.
2. Major Differences from Conventional Loans: Non recourse loans generally require higher down payments (typically 30–40%), shorter loan terms, and are based solely on the income and value of the property, not the individual borrower’s credit or income. Conventional loans, by contrast, scrutinize the borrower’s credit, history, and offer lower down payments.
3. The UDFI Tax Consideration: Investors using leverage inside their retirement accounts need to be aware of unrelated debt financed income (UDFI) tax, which can apply to profits proportional to the financed portion. Notably, this tax generally applies to IRAs, but Solo 401(k)s may offer an exemption for qualifying investors.
4. Process and Requirements: Ryan walks through the process of obtaining a non recourse loan: ensuring sufficient IRA funds for the down payment, confirming the property meets rental income and reserve criteria, and understanding all associated closing costs and reserve requirements. Every detail, from deal structure to ongoing payments, must remain within the retirement account to comply with IRS rules.
5. Expert Guidance and Diversification: Both Ryan and Kyle stress the importance of working with experienced professionals who understand self-directed IRA rules and the non recourse loan process. They encourage investors to diversify beyond the stock market into real estate, private lending, equity, and other alternative assets while emphasizing education and attention to tax implications.

Whether you’re exploring ways to expand your self-directed retirement portfolio into real estate or just curious about how leverage works in an IRA, this episode offers practical knowledge, insights from an industry veteran, and clear guidance to help you invest wisely and build lasting wealth. Don’t miss Kyle and Ryan’s conversation if you’re ready to take your retirement strategy to the next level!

You know, just the typical, you know, stocks and bonds, which are, there's nothing wrong with that. I think you got to diversify, but, but being able to leverage your IRA 401k is so valuable.

Well, good afternoon ladies and gentlemen, or good morning wherever and whenever you might be listening to us. And welcome to another episode of the IRA Cafe and our production of one of our podcasts. I'm Kyle Moody, I'm in the business development department of American ira. And it's always a pleasure to be here with you to share some information and hopefully you're going to get something that you can use for your investment future. Today we're actually going to talk about a specific topic, Non recourse loans and the importance of them, what they are and why you need to know about this. Specifically, if using a self directed retirement account, anyone who reaches out to us, they are looking to use their retirement dollars not in the stock market, but they're gonna use that and diversify into another IRA portfolio where they're going to invest in real estate, for example. There's other options as well being private lending, investing into private equities, precious metals and such. But specifically when we're talking about investing in real estate, one of the questions I will get is do I have to purchase the property 100% from my retirement account? Because I don't think I have that in there.

And if they're in a point where they can't do any more contributions or there's not another retirement account to move funds in to make the purchase 100%, they might think that they're out of the deal, when actually that's not the point at all. There's multiple ways that you can partner on certain deals, get other funds into that account to acquire that piece of property. But one in particular is called the non recourse loan. It is the only loan that you are able to leverage with when using a self directed ira. Because remember, the property does not not belong to you, it belongs to the retirement account. And because of that you cannot be the self guarantor of the loan itself. There's other things to know about it and I'm going to leave that to our esteemed guest today who's going to join us to tell you all the ins and outs, the particulars of it and probably give us some scenarios of examples. This is Ryan Hughes.

Ryan Hughes is the CEO of Non recourse loan and is actually I would consider a colleague and a friend. Over the years, Ryan probably referred over one of my first clients gosh dating back to about eight years ago in the business. And so it's always great to build those relationships, bounce information off of one another. I can call him, he can call me, we can always talk about the latest in the, in the business. But it's always great to have that referral stream as well. I continue to go back to Ryan because I know that if I have a question about something or quite frankly if our clients have a question about something, I know that they're going to get the best information whether it's exactly what they want to hear. It's going to be exactly what they need to know about moving forward with their investment. So without further delay, let me introduce you to Ryan Hughes.

Ryan actually has an extensive banking background and it's what he has used as a platform to get him where he is today with his new company that he launched just at the beginning of the year called Non Recourse Loan. So Ryan, thank you so much for joining us on IRA Cafe today. Tell us a little bit about yourself and Non Recourse Loan.

Well, thanks Kyle for having me on the podcast. An IRA cafe again, you know, Ryan Hughes with nonrecourse loan.com and have a, you know, my background's been in banking lending for the last 25 years, mostly in the lending space and any, any type of strategic, you know, banking solutions from obviously supporting the most recent 8 years of supporting IRAs and 401k type checking accounts so they can, you know, invest in alternative assets, one of those being in real estate. And so, so they can build their net worth without, with avoiding some of the tax implications, you know, that the irs, you know, they allow. And that's, you know, really what I've been, been doing. You know, I'm all about, you know, building generational wealth and legacy with, you know, with, with assets. It's always the best thing. If you look at all the people with high net worth, you know, they always invest in, in real estate. That's, you know, it's always, it's going up, it's been, it's been around for as long as, well, as long as I've been around and forever.

So it's a, it's a great way to, to build your, build your retirement and this is just a way to leverage. If you don't have enough money inside your retirement, you can actually use this loan as leverage to, I guess, you know, with your 401k or your IRA. And because it has to be like Kyle said, not recourse, but it has to Be there's no personal liability is the biggest part about this type of loan transaction.

Yeah, Ryan, thank you for that intro on non recourse. One of the things that I mentioned in my part at the beginning of the show was if someone's doing a transaction, they need leverage and they're going to be getting a loan. Lots of times I'll have folks that will go ahead and volunteer. Hey, I've already been speaking with my banker, I've done other things on investment properties. I've got the bank I'm going to use and we move forward, of course, really quickly I ask, okay look, is this going to be a non recourse loan? Because things are a little different, actually a lot different in the lending and leverage space when we're talking about getting a loan with a self directed IRA and they'll say no, it's actually going to be a conventional loan. And so then that way we start getting into, well listen, we need to go, you're going to have to look for the non recourse. So if you can just kind of hit some of the high points for us, Ryan, maybe just two or three bullet points out there are, you know, what do people know about conventional loans? What are their characteristics? And then how is that going to really differentiate itself from what people really need to do with a self directed IRA and use the non recourse? So just the difference between, you know, a conventional and a non recourse loan?

No, great question, Kyle. So the biggest thing is with a conventional loan you have personal guarantee. So typically you have. That means the bank can go after the lender, can go after the asset, but they also can go after you personally if there's any deficit when they take the property back, if there's any remaining balance after fees and foreclosure and the property when they sell it, then they can come after you personally and put a lien against you and go on your credit with the non recourse. There is no personal guarantee and you gotta be careful because a lot of people will do a non recourse and then they have, it's called a bad boy carve out where they still could technically go after that person personally, which wouldn't comply with the IRS regulation for a non recourse loan. And I mean you can do non recourse loans outside of an IRA and there's a lot of the larger companies, so you can actually there are non recourse loans outside of this. But this is what we built was specially for the actual IRAs and the 401ks. So that's the biggest part is the title.

There's no personal guarantee. So it has to be titled in the name of your ira. So American IRA fbo, you know, Jane Doe versus It's actually in the name of the person. So that's. It's a business loan versus a personal loan. So it is a true commercial loan is the other difference. And then there's a couple other caveats. In terms of down payment, the rate may be it's a little higher than a typical conventional loan.

You know, we do require, you know, typically 30, 40% down payment versus you know, maybe 15 or 20 on a conventional and the terms are normally a little shorter, you know, 20 or 25 year versus a 30 year am on a conventional loan. So those are some of the different differences. And then of course we don't, you know, we're not looking at your personal income, you know, so we look at the income of the property solely to qualify versus the actual, the actual person's, you know, W2 or self employed income. So those are some of the biggest differences is it's all based on them. It's really a DSCR loan, a debt service coverage loan. So that's what. It's what it is. And with no personal guarantee.

Yeah. Great. And you know, over the years, obviously you and I met when you were at a bank. Tell us a little bit now. I mean as you've launched this new platform for your life, obviously we know everybody's measuring, you know, what is your why, what is, what is the reason that you're, you take on certain things that you do. I know that I can tell you Ryan's Y is right over his right shoulder there, his family on the wall. He and I both have kids that are athletes, except Ryan's got about six times the kids that I do. And so I know he does it all for his wife and kids there and everything.

But getting into now non recourse loan, the company that is tell us what sets you apart and your business apart from somebody maybe calling around to the different banks out there.

Sure. So and you know, thank you. Definitely my why is my family that's 100%, you know, what I do in my life and always have it's you know, to hopefully, you know, leave that legacy behind and for them to carry on the name and so and also with the non recourse loans at the bank, there were so many clients that were looking for the service or the understanding of it and they would go down this path and Then realize, oh wait, you know, you can't do this. They've already put deposits down, pay for appraisals, so forth and so on and taking the time and then the, the bank or the lender that they're going, they're using is oh well no, you have to sign a personal guarantee. They go to American IRA with the documents and then you're like well no, you can't do this. And then they're scrambling, then they end up losing money. So it hurts the industry that we're in. I really want to grow and help expand the self directed industry and this is one way to really give back and to help leverage and grow their assets, make this more mainstream versus just typical stocks and bonds which there's nothing wrong with that.

I think you've got to diversify. But, but being able to leverage your IRA 401k is so valuable. So that to me is just supporting that and having the banking knowledge and industry experience as well as the lending. That's what really sets me apart. You know, there's some, there's lenders out there and there's banks out there, but there's very few that do both. You know, and that's, that's where I want to make sure I can help support that and give, give guidance from, from the IRA perspective, from the banking perspective and intertwined everything together is really the difference I bring is having those to the knowledge of both sides of it.

No, absolutely. And you really do and I know that our clients appreciate that. So if someone, now obviously they're not working with me as much on the sales deck, which is where I'm coming from as opposed to when they were working with their transaction specialist in the operations side of the company. But you know, somebody's talking to their transaction specialist or they're on the phone with client services and so they're talking about their self directed retirement account, they're ready to move forward with an investment. They know that. Okay, well I've heard the non recourse. I've done some recommendations, research on that. I think I'm going to give Ryan a call.

So they give you a call because right now they're going, well, how does it work? Like what? I don't know what, I don't know. What are some things that you're going to talk about with those folks break down for us? Really how it works, what it looks like, you know, rather, you know, we can go soup the nuts on that or really just the high points on, on what doing that non recourse is going to look like with you.

Sure. So the biggest part I start with is, you know, well, if they've identified a property and if they have, then of course we can get information on that particular property, see if it qualifies from, you know, well, the number one part, first they got to see if they have enough money for the down payment. A lot, a lot of the clients, they don't understand that, oh, I need 30%, 40% plus you need reserves. There's a reason why you have to have reserves. We can, we can talk about that. But that's the number one thing I start with is how much money do you have in your ira, you know, and that's the first thing that could throw it out. Right. You know, maybe they only have, you know, 10%, 20% to put down and they're not going to qualify.

So that's number one. Secondly is, you know, is to determine the property, what the income is on the property, you know, the rents and what the, what their taxes and insurance, you know, if there's hoa. So you have to go through expenses and then back those out and then you have to make sure it debt, debt services to qualify. So those are the two, the biggest, well, those are mainly the only reasons why it wouldn't qualify your down payment. And then of course, if that property doesn't, if it doesn't cash flow enough, which it has to cash flow 125% above the actual net income, I'm sorry, the principal and interest. So it's 125% of the principal and interest. So that's, if it's $1,000, your payment and your principal and interest payment is $1,000, your net income has to be 1,250 is how that works.

Gotcha. Okay, and really quickly, just, you know, off the cuff here, the question I do get probably more than anything, when I'm letting folks know that non recourse is the only type of loan they can have, and then when I explain it, they're thinking, well, that might sound a little bit more expensive upfront. Like you said, it's all really going to depend on, okay, what's in the account, what's the property price. But just really briefly, what might be the difference in money down conventionally compared to non recourse?

So, so it's typically on a conventional, you know, depending on your credit score. Right. So that's another factor is when you do conventional, a lot of the terms and rates guidelines are based on your credit score. You know, Your past history, do you have experience? You know, how many properties have you bought in the last three years? So there's other factors with conventional type, type of lending, whereas a non recourse, it's strictly really based. I mean we do look at, we want to know the customer and we do look at credit, you know, the credit history and the credit worthiness. But ultimately it's based on, on the property. So the difference, if you're an a740 plus credit borrower, unconventional, you know, you may, and you have experience, you, you probably can get a 85%, you know, maybe 90, but typically you know, 80, that 85% loan to value. So you only need to put 15% down on a non recourse regardless.

You're going to have to have at least 30, if not 40% down payment in order to qualify for it. So that's, that's what's out there currently. Now I'm not talking about private lenders or some hard money. You, maybe you can find something that's, that's outside of those parameters. But so you want to figure at least, you know, really double what you're going to put down for a conventional loan. And then there's also the factor of the reserve account which a lot of people don't take in consideration. So if you're buying a $300,000 house, say you have, you know, $150,000 in your IRA, well, you got to put down, you know, you figured $90,000, maybe $120,000 down payment. But then you also have to have that 10 to 15% reserve buffer.

And the reason that's there is to protect the IRA holder because you can't personally, you can't use your personal funds, you know, co mingle your personal funds like you could on a conventional loan. You could use a credit card, you could use, you know, other funds where an IRA you can't. So that's, that's the, the biggest factor on these great.

The other thing that we know on the back end of the non recourse loan and I, I let folks know, hey look, I'm going to, I can't advise you on this. As you know, we're not permitted to give any tax, legal or financial advice, suggestions or opinions. But it's always great to come with some, you know, really factual knowledge that someone needs to know about so they might realize, oh wow, okay, so I don't have to come with the investment 100%. I'm gonna be doing the non recourse loan and then Lo and behold they find out that hey wait a minute, I was using my self directed retirement account here because I didn't, you know, the whole point was for there not to be any taxation. Well, one thing that folks should know and Ryan is really good at explaining this so I'm gonna let him take the longer part. But I like to let folks know, hey, by the way, now you're not going to be taxed on the amount of money that's coming into the retirement account to make the acquisition. But there is something out there called UDFI unrelated debt to finance income tax. And that is going to be based off of the profit that is coming in.

Whether you start talking about a buy and hold that's going to be tenant occupied. And when that rent comes in, how much did that property make that year? Was it a fix and flip? Is that non recourse loan still in existence or have you paid it off? So Ryan, if you could tell the audience or our listeners really quickly about udfi, everything that you know about it and you know how it works, if the loan still exists and then what happens after the loan is paid off?

Thanks Kyle. I think you did a better job than, than, than, than, than I could. But no, the UDFI is something you know, some people you want to, you want to think about because as you're buying that property and say you're, you know, it's a 200000 property and you're putting a hundred thousand dollars down. So you're borrowing a hundred thousand when you sell that. So 50% of that, of that acquisition, you know, you're, you're leveraging which is where the UDF you know comes into play and you sell that asset for three hundred thousand. So you're making a hundred thousand profit. Well that fifty, half of that profit is going to be subject to that UDFI that college referenced. And that's where you have to take, and that has to come from you personally.

It can't come from your ira. So you have to actually have that money personally and you put it on your tax return and you have to claim that. So when you sell that asset, you have to include that on your, on your tax return for that year. So that's where the UDFI comes into play. Now one part of that, that's for an IRA there, you know, in which American IRA offers the Solo 401K as well. And if you do qualify for that, of course I'm sure Kyle you know, talks to you about that. You know, not everyone qualifies for the Solo 401k but that, that allows you to, to avoid the UDFI attack. So there are advantages if you qualify for a solo 4:1 versus the actual IRA.

So that's something to consider.

Great point there on the Solo K as well. And I think that, you know, sometimes people may think, oh gosh, you know, I'm doing this in my HSA or you know, my esa, my Coverdell, or I'm going to make this investment with my inherited. One good thing to know about American IRA is that if it's a retirement account out there, we have the self directed option. So anybody who has the, the traditional or Roth IRA that they are looking to transfer in if they have a 401k from a previous employer or a 403B457, even the military tsp, they're looking to move those account types in and roll those into a traditional or a Roth. But then also there might be the folks who, you know, have the inherited. Was it spousal inherited? Was it an aunt or an uncle or a grandparent inherited? Is there a spousal account that someone. But then also as ryan mentioned, the Solo 401K, the most powerful retirement vehicle out there for anyone to use and that's for someone that has their own business with no full time employees. That part's very important.

If you do have the full time employees, then you can also pivot to the simple or the sep, whichever one between you and your CPA that makes sense to do for your business. And the reason I have just listed all of these for you is to say that no matter the retirement vehicle, you can make all of the same investments with all of the different retirement accounts. And with that the non recourse loan can actually now help me out here, Ryan. I would dare say that no matter the retirement vehicle, a non recourse loan can be used with any of those. Correct. It's just that to your point, the Solo 401K, you might not be subject to the UDFI taxation the way that you would be with any of the other accounts.

Yes, it can. And that, and that's, you know, at least from our perspective, right. Maybe you always want to check with the lender, with your tax, you know, with your tax professional. I always let everyone know, you know, this is, we're knowledgeable on this, but we're not, you know, we are not a certified tax planner or you know, accountant. So you always want to check with them, make sure that you're not violating the tax rules. But one thing I did want to mention we, we've actually done HSA account. So we've, we've done an HSA not recourse loan. And those are, those are extremely powerful of course, because you're, you know, it's coming in, you know, correct me if I'm wrong, but it's coming in, it's coming in tax, you know, tax free, you know, going in and tax free going out.

So those are typically, they're much smaller. But people I have, I, I've had clients that have put that together with like a solo case. So they've actually, you know, had a partnership. They got buy into an LLC and they're both owned by, you know, the HSA and the 401K. So that's something that we, we, we're okay with doing as well.

So I'll let folks know too, hey look, you know, you've got the non recourse loan and they'll say, well then where, where is the property? Hey, the property sitting in the same place it was when you, when you saw it really the way that it looks. And I mean, I know it all seems virtual these days in this world. And where's the money going and how does, how does everything get paid for? So Ryan, how do you get paid? Because what we tell folks is hey look, the retirement account is going to own the property 100%. Now granted it's not going to own it 100% from 100% of retirement funds. And again this is what is the overlay of the UDFI taxation. Because any of that profit that comes back in it's going to be subject to because some of that acquisition price or funds came from an outside source. Regardless if it's a banking institution or not. It still wasn't your true retirement funds.

But you know, so the, the, the, the mortgage bills or you know, we pay the mortgage on that. Explain a little bit Ryan, from your standpoint, you know, how folks, or how you get paid and how folks should be paying for everything or how we are paying things from the retirement account to where it needs to go if there actually is a non recourse loan in place.

Oh yeah, that's great, great point. So you know, there's a couple, obviously there's different transactions. There's, and American IRA offers all of these. But you know, you either have the custodial where you're, where you're managing the, you know, managing the IRA or the 401k. And some people choose to do the solo case and, and manage it themselves where they're not having the recordkeeping handle it on, you know, from American ira. But you definitely, no matter how you're doing it, you want, you have your custodial, you know, Americans send the funds to, to the lender. So we have a servicing, you know, company or if we use an outside lender, we have, you know, you'll pay them directly from your, from your IRA or 401k. And so the funds have to come from there.

They can't come from your personal bank account. And you know, you don't want to commingle anything. So that's, that's, you want to, that's number one. Right? You don't want to violate that. So, you know, the funds have to come in there. We get paid. We do get paid. There's, you know, obviously closing costs.

Just like a regular mortgage. There's origination, there's, there's, you know, doc fees, the flood certs the credit report. So there's a standard, standard closing cost. And that's just like a typical mortgage title fee, you know, title hoa. So all that, all that stuff is still the same. We typically, you know, how we get paid is, you know, there's, you know, there's maybe some in the interest rate, but, you know, but typically it's all done on the origination side of things. So that's the closing costs. So, so that's, I didn't cover that earlier.

You have to have your closing costs plus the down payment, plus the reserves. So it is, it ends up being, you know, a fairly, you know, large amount for that purchase. But it's, it's a great, it's a great vehicle still. It just, you have to take in consideration, oh my gosh, I got 30% down, another 10% in reserves or whatever that is. And then plus, oh, I got, I got closing costs. And so, and those do vary based on the states. So, you know, but, you know, typically so that, that those do vary. And you can just check with the lender or, you know, obviously give us a call.

We can, we can walk through those, those numbers with you.

You mentioned a point where people will start looking at, you know, cost this, cost that. Look, there's going to be a cost. And in business, I mean, you know, if one thing that we talked about at a conference this past weekend is really how to have successful investments, even starting out, you're using other people's money. Well, this is just another version of it. And what are you looking to gain? I have always told folks, especially in real estate, you Know, measure your objective and then stay focused on it. There may be some costs along the way, but as long as you reach your objective, that was the most important part. So it's always good to know. Again, like we said, hey, you need to know about the possibility of udfi, depending on the account option that you're going to be using, the vehicle that you have.

And then obviously listening to Ryan's words and then being able to tap into him as well and ask him more of the specific questions that might be germane to your actual scenario. Because every investment, every investor, every property is different. We all know that. So, Ryan, I wanted to thank you again for being on our show today. It's always a positive. It's always a great time to be able to connect with you. We're over here in the Carolinas, you're over there in Texas, so we might not be able to hardly ever see each other in person, but when we can join up on this or connect on our calls and toss ideas back and forth, it's always a pleasure. And now even more of a pleasure is to be able to share that with all of our listeners out there.

So any parting information or words you'd like to give everyone today?

No, you know, thanks for having me. Definitely reach out any questions. I'm, I'm definitely, I'm okay with anyone calling or just, you know, bouncing ideas off. And I try to, I always try to look at the whole picture, not just, you know, you know, how, how are we going to make money, but I truly want what's best, you know, for this industry. And so, you know, and I'll tell you, well, you know, you might want to go look at, you know, a different, a different loan product or, you know, get a partner. So, so, you know, I'm always the one to say, well, you know what, maybe that's not the right property for you. So it's, you know, I'm open, email, question text, you know, however you want to get ahold of us, we'd love to help you out.

Fantastic. Fantastic. Well, listen, as always, it was great to have you on here today. Look forward to having you back. And for everyone that's listening out there or watching, you can also catch our webinars that we have had that Ryan has joined us on, and you may even see some of his quotes and some of our library print that's out there. Either way, you can always get that and more information at our website, which is www.american ira.com. you can initiate your application directly from our website. If you need some assistance on that, you can always call me directly.

You can always set up a consultation call with myself or anyone else on the sales team. We're always enthusiastic and ready and privileged and honored to be able to answer your questions. That's going to help you be a successful investor. One property at a time, one note at a time. Or if precious metals or if private entities are your thing. So whatever that is, we are here with a product for you. We thank you again for your time today and for listening to us on the IRA Cafe Podcast series brought to you by American ira. Once again, I'm Kyle Moody in the Business Development Office and we will see you next time on another one of our productions.

So have a great rest of your day and week, wherever and whenever you may be listening.

Take care American IRA llc, a North Carolina llc, acts as a third party Administrator for New Vision Trust Company, a state chartered South Dakota Trust Company. As a neutral, self directed IRA administrator. American IRA does not recommend or endorse any investments, individuals or entities, including financial representatives, promoters or companies. American IRA and the IRA Cafe are not responsible for other statements, representations or agreements, nor do we evaluate the quality or profitability of any investment. American IRA does not endorse Guests on the IRA Cafe podcast. Guest opinions are their own and do not necessarily reflect the views of American ira, its subsidiaries, associates or custodian. Participation in the podcast is voluntary and no compensation is provided. American IRA is not a fiduciary and cannot offer financial advice.

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