Creative Financing? Savings, HELOC, 401k, HML, Personal Loans/CC

[Aileen Sanchez]

Hey All!

Love this forum and all the great info I've been able to soak in as I embark on my REI journey! I am getting ready to purchase my first Investment Property following the BRRR strategy and am trying to decide which financing structure is best or makes the most sense? I will be purchasing in Baltimore and I have been told my other investors/realtors that cash is really the best way to go as properties are being picked up quickly. I am looking to purchase and rehab for under $100k all in, no particular property chosen yet but due diligence will be done of course to make sure it's a lucrative deal. I have a credit score over 800 and a low 6 figure income with no debt other than my current mortgage and car note combined under $2k a month. I know it's not smart to dump all my eggs in one basket so what do you think is the best combo to go with here? Here is what I'm working with...

1. Savings- About $30k (I have more savings coming out of CDs in the next couple months, but that will be my emergency fund)
2. HELOC on my primary home- $36k
3. 401k- Can borrow up to $40k and pay back over 5 yrs
4. Personal Loans- xx amount?? 
5. New credit card with 0% intro rate for 20 months and maybe using some Venmo, PP transactions to get cash 
6. Last but not least Hard Money 

What would you do?? Welcoming all advice, Thanks!  :) 

[Greg Scott]

A cash offer simply means you do not have a contingency for financing. That said, I think it would be a huge mistake for you to tie up all your capital in one project. I'd get pre-approved for financing so you know that end is locked up. You can make "cash offers" even if you intend to get a mortgage later. I'd still keep inspection contingencies in place in case you find the property is a dog. Also, get a decent assessment of ARV up-front so you know whether or not the appraisal is likely to support the financing you want.

Then, in terms of where you pull your down payment, I like borrowing from the 401(k).  Why?  In essence, you are just borrowing from yourself, so the effective cost is zero.  (For those that argue there is an opportunity cost to taking money out of a 401(k), I'd argue that is more than offset by doing a good real estate deal.)  Borrowing against a 401(k) does not create any additional lien against your existing assets and isn't something that shows up on a credit report.