Non-Recourse Financing for Real Estate Investing – Approval Based on Asset Not the Buyer

There’s a powerful financing tool out there that most have never heard of, which is non-recourse financing for real estate investing. This is a brilliant funding strategy frequently used by seasoned investors as well as those just beginning their journey. However, it’s especially useful for individuals holding back on buying a rental property because of their personal qualification concerns.

For these individuals, it can open up a world of opportunity and provide renewed hope in achieving their dream of becoming financially independent by investing in cash flowing properties. Before we dive into all things non-recourse, I’ll set the stage with a brief summary of this specific loan type:

What is non-recourse financing for real estate investing? A type of financing where an asset-based loan is utilized to purchase rental properties, and the approval is based on characteristics of the property itself, not the investor’s personal qualifications. 

Why Use Non-Recourse Financing to Invest in Real Estate?

Non-recourse financing is a game-changer in the real estate investment landscape that can empower anyone to create and grow a real estate portfolio. What makes it so appealing is that it’s an asset-based loan, so it’s not directly linked to the investor. This makes it possible for individuals with shaky credit to move forward with financing when they would otherwise be turned down for a traditional recourse loan. It also offers a protective cushion when it comes to the investor’s personal assets, as well as makes for an essential funding option for those who live overseas.

The bottom line is that non-recourse financing can set individuals on a path to owning multiple rental properties with high returns, allowing them to build the wealth needed to become financially free.

Ok, now that you have a glimpse into how useful this loan type can be, let’s discuss more advantages of using non-recourse financing for real estate investing.

1. Non-Recourse Loans Remove the Limit of Financing Ten Rental Properties at a Time

Recourse loans, known as traditional financing, puts a cap on the number of mortgages one person can hold and, therefore, rental properties an individual can own. As you can imagine, this can inhibit growth for real estate investors. Traditional recourse financing only allows for ten mortgages in your name at one time, and if your Freedom Number happens to be 12, then your ability to become financially free is cut short.

What’s your Freedom Number? Well, it’s the number of rental properties needed to cover your monthly expenses so that you can become financially independent. You can download our Freedom Number Cheat Sheet at no charge to calculate what your number is. Additionally, if you have any questions about how to use the cheat sheet formula, or anything else, feel free to schedule a complimentary call with our team.

Having a limit of ten properties won’t work for those planning on building great wealth. Thankfully, there is a way to bypass this limitation and it’s non-recourse financing. With this type of loan, there’s no limit on the number of mortgages you can have at one time. This makes sense since the lender is not looking at you personally when calculating the risk factor, but instead, they’re focused on the property that has already been vetted as a lucrative piece of real estate.

The main takeaway is that investors can leverage this financing model to significantly expand their portfolios with an unlimited number of properties.

2. Credit History Won’t Hold Investors Back Because it’s an Asset-Based Loan

In the world of asset-based loans, the emphasis lies heavily on the asset’s value, location, condition, it’s ability to appreciate and how well it will cash flow, and if there’s a tenant in place, among other things, rather than the borrower’s credit history, or their debt-to-income ratio.

Not putting weight on the investor’s credit and financial history, which can determine their ability to repay the loan, is possible because if the loan defaults, the lender takes the property that has already been deemed valuable.

Because of this, non-recourse loans offer the opportunity for investors with less-than-stellar credit history to unlock funding opportunities.

One of our clients, Geiby, utilized non-recourse financing – you can check out my Interview with Geiby to hear how everything worked out for him. Here’s what he had to say about using this type of loan:

“I never knew about non-recourse financing before; it’s an amazing tool. I just didn’t expect to have financing like that, it’s a really great opportunity, and I think everyone should tap into that. Getting two homes without even tapping into your credit history, that’s simply amazing.” 

3. Non-Recourse Financing Sports a Low Personal Risk Factor

Non-recourse loans have a low-risk factor when an investor defaults on the loan due to non-payment. This is because the loan is not tied to the investor, but instead the property, which is all they can touch in this type of situation. This also means that unlike a traditional recourse loan, utilizing non-recourse financing ensures that the lender can’t garnish your wages, repossess your car, seize bank accounts, or take your valuable assets to recoup their losses.

4. Allows International Buyers to Avoid U.S. Financing Roadblocks

It’s difficult for lenders to verify and qualify someone who lives on the other side of the world. Mostly because the foreign investor doesn’t have U.S. tax returns, a U.S. credit history, and the like. The loan approval process can be a difficult and frustrating experience for the investor when trying to get a bank to finance an American property.

It can get to the point where the overseas investor ends up either paying cash or gives up altogether rather than deal with all the red tape. Both of these options are not wise investment strategies, and they’re unnecessary because there is a way around the roadblocks.

Here’s a great video that elaborates on this topic of non-recourse financing for real estate investing as a non-U.S citizen:

A non-recourse loan is the answer to this foreign investment problem, and  we frequently use this type of financing with individuals who live abroad. It provides them with not only a cash flowing property, but also a stress-free experience.

We do this by using non-recourse loans because, with them, the foreign investor doesn’t need to be a U.S. citizen with a U.S. social security number, and won’t need to verify their income. They also won’t have to travel to the United States to set up a domestic bank account.

I put together a piece on this topic – The Best Strategies for Buying U.S. Real Estate if You’re a Foreign Investor.

Morris Invest Uses Non-Recourse Financing

No matter what your reason for inquiring about non-recourse financing – your credit isn’t so great, you feel your income won’t be high enough to qualify for a loan, or maybe you’re not a U.S. citizen, or perhaps you plan on investing in more than ten properties; know that we can help.

Here’s some information on how Morris Invest uses this powerful financing tool:

1. Non-Recourse Financing is Built Into All Our Properties

Morris Invest is the best full-service real estate company to work with because we have non-recourse financing built into all our new construction properties. What this means is that the lender has already approved the loan, so you won’t have to worry about personally being approved. Additionally, when you work with us, it doesn’t take the typical 8 to 12 months for the investor because the underwriting process has already been taken care of. Because of this, you’ll be able to close super quick, within 10 to 15 days since all the leg work was already completed by our team.

2. Our Relationship with Lenders Gets Us Lower Interest Rates and Down Payments

We have exceptional relationships, along with an incredible track record with our lenders who are located in the same area as our properties. This means they know our properties inside and out – how they’re constructed, the fact that they successfully cash flow, as well as how our rentals typically have a tenant moving in or in place at closing.

They know our property managers and are intimately familiar with the location of our rentals, which are situated within a booming economy, and an area where the demand for rental properties is through the roof. On a related topic, here’s a post that discusses how new construction rental properties are in high demand.

We build in cities that have great school districts, low crime rates, and that are recession-proof. All this has lenders competing for our business, which is how we’re able to negotiate lower interest rates, and smaller down payments. Read over our article that goes into detail on the prosperous location we’re currently building in – Why Real Estate Investing is Attractive in Texas.

You see, the majority of lenders feel that non-recourse loans are risky for them, so interest rates and down payments are generally higher. But because of our unique situation of having high-performing new construction rental properties in such a lucrative location, lenders know the value in them, so they’re willing to lower their rates. This is essential to profitability because having a lower interest rate saves the investor a great deal of money.

3. Experienced in Using Non-Recourse Loans with Self Directed IRAs

We work with all types of financing methods, and one of them is investing with a self-directed IRA. When an investor wants to use their SDIRA to invest, they’re required to use a non-recourse loan.

In this situation, the team over at Morris Invest is equipped to make it happen, even when the investor doesn’t have an SDIRA to begin with. What I mean by this is that we can set one up for you by transferring your traditional IRA funds into a self directed account, or by rolling your 401(k) over to an SDIRA.

If you’re not sure if you should keep your 401(k) funds where they are, then I suggest reading over my latest article – Reasons Why the 401(k) is a Bad Investment Vehicle to Retire On.

Power Resources for Real Estate Investors

• The Financial Freedom Academy
• Freedom Number Cheat Sheet
• 90-Day Financial Empowerment Bootcamp
• Morris Invest & SDIRA Program Overview

In addition to these resources, dive into the following articles to increase your knowledge base:

• How to Retire Early Using Real Estate Investing.
• Why New Construction Properties are a Good Investment.
• 9-5 Day Job vs Rental Real Estate Investing.
• Can You Use a HELOC to Invest in Rental Real Estate?

Let Non-Recourse Financing Grow Your Real Estate Portfolio and Your Wealth!

Grow your portfolio with the power of non-recourse financing; it’s an incredible financial tool that savvy investors use to their advantage. We use non-recourse loans on all our properties because we know it’s the most efficient, profitable, and easiest way to finance a rental property.

If you’re interested in hearing more about how we incorporate non-recourse loans into our property purchases, schedule a free 30-minute call – we would be happy to answer all your questions and help you get set up with a cash flowing rental property.

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