Is it best to use personal savings or property equity?

[Sean Moore]

Hello everyone,

My husband and I are new to both BP and real estate investments. As we navigate the road to our first investment property we've come into a bit of a dilemma.  We're unsure of the best way to finance our first investment.  My hope is someone here can enlighten us on which option makes sense financially. 

We have about $250,000 in equity in our primary home and a little more than $100,000 in savings. Initially we were just going to use some of our savings as the downpayment and take out a mortgage on the investment property and not touch the equity in our home. Recently a friend/mortgage broker told us it's best we use our equity to buy the investment property and not touch our savings. He further explained that if we purchased the investment property with cash we'd have no problem putting the property under our LLC refinancing it and paying our primary mortgage off.

I think it's best to use the equity. However, my husband has reservations about taking equity out of our primary home as he has worked hard doubling payments to make sure it's paid off before we retire he's very wary about taking any risks with our primary home.

I would really appreciate sound opinions and advice.

Thanks Crystal &

[Steve Vaughan]

Personally, my wife and I buy with cash.  We have a Heloc, but it is for reserves or just in case.  There's been a couple times we thought we were going to use the Heloc, but after taking a cold shower and making some small adjustments, we have not tapped it yet. 

Funny thing is, by the time another opportunity arises, our opportunity fund has grown again from not having debt service to pay.  The snowball grows.

Not using equity keeps us more honest and fighting for better deals.  When you use personal savings, it's more real and triggers the pain centers in the brain IMO. Like buying things with cash does. You feel it.

It also keeps us from feeling rich and spending frivolously on lifestyle.  When our reserves drop below a certain level, we get more focused and prioritize to build it up again. Just the way we do it.