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Would you take out a business loan as a down payment?
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!
Review with and consult a CPA. It will save you a lot of time and money.
I doubt any lender would do something like this. You're wanting to borrow money to borrow more money. If you find a bank willing to do a deal like that let me know their contact info.
You're going to need to put 25% cash down since you'll be needing a commercial loan.
Yeah give me the bank number, too.
The norm is "No part of the down payment can be borrowed funds". If you do and get caught, that's fraud and they WILL call the loan.
I read Business Loan, not from 401k or against some insurance policy. Any new loan in your name will be a problem.
I am confused by the people saying this can not be done. But I have never done this myself. According to Juan Pablo of 100 Percent Financed you can use business credit to buy real estate. I have not read his $200 book or signed up for his $2,500 course that tells you how to do it, but he has lot of folks that sing his praise.
I myself am banking on Ben Leybovich Cash Flow Freedom course and Brandon Turner and Josh Dorkin's "The Book on Investing in Real Estate with No (and Low) Money Down: Real Life Strategies for Investing in Real Estate Using Other People's Money" book for my guidance. But a whole lot of people believe in Jan Pablo.
Just saying
Originally posted by @Wade Alderson:
I am confused by the people saying this can not be done. But I have never done this myself. According to Juan Pablo of 100 Percent Financed you can use business credit to buy real estate.
Sure you can BUT you can't borrow the down payment.
Haha of course you can borrow the down-payment :)
There is a funny saying when you do not need the money everyone wants to loan it to you! lol
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
Originally posted by @Avi Garg:
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
The $1981 was actually the taxes and insurance. On the loopnet website they told me that's what it would be with 20% down. There's "extra" taxes and insurance? And where is the 1600 coming from again?
Originally posted by @Ben Leybovich:
Haha of course you can borrow the down-payment :)
Are you trying to help or are you just trying to amuse yourself at my expense?
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
Originally posted by @Raeshelle C.:
Originally posted by @Ben Leybovich:Haha of course you can borrow the down-payment :)
Are you trying to help or are you just trying to amuse yourself at my expense?
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!
When I use my line of credit to make a downpayment on a new investment I am doing something similar to what you describe.
Originally posted by @Max T.:
When I use my line of credit to make a downpayment on a new investment I am doing something similar to what you describe.
@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?
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?