Would you take out a business loan as a down payment?

Question

On the mortgage of a n investment property? Here's an example. I found an investment property on loopnet.com and did analyzed the deal as an example.

A 5-unit investment property with an asking price of $352K and an annual net income of $33706 is listed on loopnet. So I calculated an example.

20% of 352K is $70400 but there's also closing costs. So let's assume you take out a business loan of $80400, just as an example, as a down payment on this house.

The business loan then, would be $479/mo for 30 years with an interest rate of 6% according to the calculator on bankrate.com.

As for the property, there's 5 units. The PITI = $1981/mo. PLUS expenses (maintenance = 10%, repairs = 10%, management = 12%), PLUS the business loan = around $393.

So our gross monthly income of $5000 - $3093 of EVERYTHING we need to pay each month = around $1900 in net monthly income.

In this deal, assuming I did it right, would you say that taking out a business loan to pay for the down payment on this particular house would be a good idea?

This is to ask, is taking out a business loan to pay for the down payment on houses in general a good idea? Looking for creative ways to get in the game. Thanks for your help!

Steffanie McAnarney · Answer

Ok so I have questions... If you had a HELOC and pulled funds from that for the down payment on an investment property are you not still "borrowing money" I know that your property is collateral but it's still a loan... So why wouldn't you be able to do the same with a SBL?

Avi Garg · Answer

@Raeshelle Cooke

Didn't know the tax and insurance was included in the $1981

$1981 for mortgage+tax+insurance on a loan of $281600 seems doable but double check.

32% is the total of the expenses which comes to $1600

Don't know about the area but I would suggest add 5% as vacancy as well

2ns business loan for downpayment still stays at $479

Cash flow = 5000 - (1981+1600+250+479) = 690

Ben Leybovich · Answer

Well, a bit of both, actually. You are approaching the issue straightforward, and instead you need to be lateral. Nothing in RE is straightforward. Of course you can't just go to the bank on the corner and borrow 100% of what you need. But, you certainly can structure 100% leverage.

Good luck!

Avi Garg · Answer

@Raeshelle Cooke

I think you can take out a business loan since it does not post in your personal credit. However, you need to have 6 months of reserves and its 25% downpayment for commercial loans. Also how you get a business loan is another issue/discussion.

For the expenses:

You have 2 values for business loan and I took the higher one @ $479

Expenses @ 32% (this does NOT include insurance and taxes)

Your monthly expenses without taxes and insurance = 1981+479 + 1600 (32% of 5k) = $4060

Add in another few hundred for the taxes and insurance (lets say $500) and you are left with $440

Ben Leybovich · Answer

Haha of course you can borrow the down-payment :)

Account Closed · Answer

Yeah give me the bank number, too.

Account Closed · Answer

Review with and consult a CPA. It will save you a lot of time and money.

Raeshelle C. · Answer

@Max Tanenbaum Thanks for your helpful answer. What are your monthly payments to pay off the credit debt? If I opened a line of credit for 300K what would the monthly payments be do you think?

Raeshelle C. · Answer

Are you trying to help or are you just trying to amuse yourself at my expense?

Would you take out a business loan as a down payment?

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