Would you use a personal line of credit to purchase a property?

Question

Hi all,

I am trying to find ways to fund my third RE deal. I was thinking that a possible solution would be to use a personal LOC to secure a property, then refinance into a conventional or portfolio loan. Assuming the numbers work with the refinanced terms, would this be a good idea? What else should I be aware of? I don't believe I have enough equity in my other two properties to borrow a useable amount. Thank you!

-Alex

John Morgan · Answer

@Alex Martens

Creative financing like this is how I’ve bought my last 12 rentals. I find ways to get them by moving $ around, then pay off these random loans asap with the rental cash flow. I currently owe on a 0% interest loan for a year in which I borrowed 20k from Citi to use as a downpayment on a rental in Feb. lol

Malcomb Stapel · Answer

@Alex Martens  we've done it about a dozen times. We actually funded the down payments from a HELOC, then repaid it with proceeds from our flips/wholesale deals. Another way to do it would be find a local lender who will refi you at 80% of the ARV if you can cash purchase it. Then just make sure your all in costs are at or under that 80% and you should get all of your money back.

Nick Barlow · Answer

@Alex Martens I would have said yes in 2018 or 2019-since then, I’ve had to replace a roof and a foundation, and I’ve started looking at LOCs as more of a reserve than a funding source.

LOCs saved me for the roof, which was a bit unexpected.

My HELOC went from a 3ish % rate to 9.1% in the last 12 months. Payments tripled.

Today, for me, it would need to be such a slamming good deal that for me to use a LOC for funding, a more connected investor than myself would have already purchased it.

Chris Seveney · Answer

@Alex Martens

Can it be done - yes, is it very risky - yes.

When Over leveraged the house of cards can come falling down very quickly - many have not experienced it because of the recency bias in real estate due to govt putting trillions into the economy but the moment things turn those who took on too much debt are the first to burn

Alex Martens · Answer

@Malcomb Stapel Thank you for your input. I appreciate it!

Alex Martens · Answer

Thank you everyone who gave input. I appreciate the help!

Malcomb Stapel · Answer

That said, make sure to have a plan going in on how you will pay this back. Maybe have two plans.

Would you use a personal line of credit to purchase a property?

Most Popular Reply