Cash or HELOC for DP

[Christopher Fougere]

Newbie question, assuming 250k duplex with 25% down requirement.(62k)

Cash reserves are currently ~45k

70% LTV in my current home is 92k.

How would you finance this first buy and hold?  Does it matter where I pull the cash from?

[Roy N.]

If you can really expect CFAT of $125/door (250/mth; 3000/yr) at those prices, then you would have a solid deal.

My rule of thumb is to use as little cash as possible (Note: an LoC is the same as cash, but carries a higher opportunity cost) when making an acquisition.

If your 5-year plan is to acquire 5 of these duplexes (15K /year CFAT), then you will need to plan for $250K - $300K in down payments if you were to go strictly with conventional financing.  If you can only assemble 100K - 150K of that from your own resources, then you will need a partner with the same objectives, or need to get creative in putting together deals.

Personally, I would be looking for something larger than a duplex.   If 250K will get you into a cash-flowing duplex, chances are 500K - 750K will get you a six to eight unit apartment building which should cash-flow 600 - 800+ per month (7200 - 9600/yr).  

To play on this field, you will need 100 - 190K for downpayment.   A partner would enable you to go with conventional financing.   Our experience has been you are more likely to find vendors willing to carry back financing on commercial buildings (5+ units).  If you can find an under-performing property with a motivated vendor, you could possible come-away with more cashflow for the same down payment it will take you to conventionally finance a duplex.   If you are at all handy with minor renovations, then you can go shopping for properties with tired landlords and small to medium amounts of deferred maintenance.

That's how I would look at getting started.