Author Topic: Home Equity LOC for downpayment  (Read 870 times)

nbock

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Home Equity LOC for downpayment
« on: July 11, 2016, 09:51:49 AM »
Dear Real Estate Mustachians,

Impart me your sage advice.  I would like to buy an investment property but am currently low on cash, with a low income. I have been doing some side work with a Real Estate Broker, which provides me a view into the distressed housing market. I am retired from the corporate world, but not fully FI yet. My home mortgage is paid off, and investment income combined with a side job are enough to pay my bills for 6 months or so while I remodel a house. I would like to use a home equity line of credit to make a 30% down payment on a fixer-upper, and borrow the rest either from a bank or family members.  Would this work? Is it a good idea? What am I missing?


iamlindoro

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Re: Home Equity LOC for downpayment
« Reply #1 on: July 11, 2016, 10:13:25 AM »
This recent thread may give you some insight (Otherwise I'd probably respond to you with more or less the same response I gave in that thread):

http://forum.mrmoneymustache.com/real-estate-and-landlording/first-rental-58397/

In short, having to borrow to make the down payment means you are severely undercapitalized, and puts you at serious risk of struggling to make payments and perform timely repairs in the event of an unexpectedly long vacancy, unexpectedly large initial repair costs, or an economic downturn.  Personally, I would throw myself into increasing cash reserves first.  I know this is hard when your reserves are increasing very slowly and you want to make progress-- but better slow progress than having it reversed by factors outside your control.
« Last Edit: July 11, 2016, 10:16:19 AM by iamlindoro »

nbock

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Re: Home Equity LOC for downpayment
« Reply #2 on: July 11, 2016, 07:47:51 PM »
Got it.  Thanks for the response.