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Residential and commercial hard money lenders want to reduce risk.  One way for an investor to do that is to create an LLC or Corporation to do the real estate transaction .  This is still an advantage for a borrower who can only obtain investment property financing a private hard money lender due to a low credit rating . This type of loan can be a NON-recourse loan which means, that makes the entity, rather than you personally, liable for the borrowed amount .

Some private hard money lenders also prefer this type of transaction because the “entity” is clean, meaning it has no liens, judgments, or other issues that could potentially cloud the title of the property.   Another way for an investor to set up a non-recourse hard money loan is to put the property intot a self-directed IRA, which also defers the tax on profits and can be an excellent way to build retirement. A third way for an investor to set up a NON-recourse hard money loan is to set up a title holding trust or a land trust. Remember, private hard money lenders are asset based lenders.  Numerous options exist to get around the need for putting cash into the deal, including cross-collateralization, pledged notes secured by other properties, buying right at the correct LTV, solid exit strategies, pocket buyers, etc .

The entity type you choose for your deal can give you greater flexibility.  For example, an self directed IRA can be “assigned” a contract by adding the words “and or assigns” in the contract to buy the property or the written offer made on behalf of a self directed IRA.  This has been a great strategy also for deferring income tax on “flip transactions” because the IRA receives the profits and is not taxed until they profits are taken out according to IRA requirements .

Real estate investors seeking deals with limited recourse or non-recourse should consider the options associated with setting up feasible investment entities.  These entities cost little to set-up and give a real estate investor a considerble quantity of protection and versatility in investing strategy.  It is not strange for an investor to set up a different entity for each different property. 

In making offers, many real estate investors will use an “assignable” clause in the purchase contract to acquire the property so as not to create a red flag for the seller.  Rehab hard money lenders frequently will consider non-recourse in the commercial segment of the investing market for income producing property .