Would you / have you done this?

Question

I posted about this concept earlier. However, I now have more information. I am re posting so it doesn't die as an old post. Thanks for any and all comments.

I am considering taking a loan from my bank to finance another note. My goal is to use my equity in a rental property to increase income.

I talked with the bank, No loan or appraisal fees. The difference would be about 2% between int. paid and int. earned.

After talking to the note people and bank here’s is what I have:

Loan from bank 6.8% interest/ interest from note 9%

5 year loan for 75K @ $1480.00 per month / total paid for loan $88,800.00 total int. $13,800.00

5 year note for 75K @562.50 per month int. only / after 5 years $33750 int. + 75000 principal = $108,750. Difference $19,950.00.

My monthly rent from my properties would be $1500.00 after taxes and ins. This would pay the monthly loan cost.

The interest would decline over the 5 years and the note would pay the same.

I could deduct the interest to offset taxes but would have more taxable income.

Is this feasible or would it be a wash and not worth the effort?

Option 2

Take the loan and buy a house to flip. Short term loan and more return but more risk (IMHO). I have never flipped!

Any thoughts.

Gary Baker · Answer

A lot of risk for 2%, could you carry a default for however long that could drag through the courts? I would look into BP’s BRRRRR strategy. At least you will have the forth coming inflationary growth in real property. If property is in a good area, you may also enjoy capital growth too while a tenant pays down your loan. A longer term strategy, not some get rich quick scheme with its own risks and pitfalls.

Mark Taliercio · Answer

Based on your personal risk profile, if you feel that this deal is worth the risk in losing your principal for 2.2%, you should proceed. Without knowing about the company issuing the note and how you personally assess risk, I believe this is the best answer you can get.

Personally, I prefer more control in the investment, and would look into a flip. This is my personal opinion of course.

Guy Yoes · Answer

@Carl Fischer

The notes are first position with a reputable firm I have worked with and currently have notes.

This to me is the less risky. My thought is I could re-invest some equity I have and make some income from without taking on the risk of buying to flip and be over extended. As i said, less upside but less risk.

thanks for your comment.

Carl Fischer · Answer

@Guy Yoes

Note sounds like less work than flipping. ROI is important but return of your principle investment is more important

You have more control over flip but more time and work. Know what you will do if you don’t get paid back.

Are you more experienced loaning money or flipping?

Good luck