Margin Loan to Finance First Purchase
I have a potential deal with someone looking to get out of their rental. Wonder what you guys think.
The house is a SF with 3 beds, 1 bath. The previous tenant was a hoarder, so the owner has completely replaced the carpeting, painted, and replaced the roof. She is asking $57,900 for the home, but told me she will accept $50,000. Here is the deal I purposed to her:
I would offer $50,000 for the house. In order to finance, I can receive $40,000 in a margin loan at 9.75% on my current investment portfolio. To make up the other $10,000, I asked if she would be willing to defer the remaining $10,000 until I sold the home or refinanced. I'm willing to put a 5 or 10 year deadline on it to ensure she would receive her money.
I realize 9.75% is a very high rate. My financial advisor said if I can secure a lower interest rate in writing, he should be able to match it, but no guarantees. My plan would be to use the margin loan for short-term financing until I could secure a HELOC on the property at a lower interest rate. I would use the HELOC to pay off the margin loan and pay the $10,000 to the seller.
I have not made an investment yet. I've been planning on using the BRRR strategy to invest in properties. However, I think this could be a potentially good deal with someone else already doing the rehab and still willing to take a loss. This "creative financing" is definitely something I've read in investing books, but I don't know if it's something that would actually work in real life. Thoughts from the pros?