BiggerPockets

Good grief, that's quite the spread there in rates. Also, what do you call a large loan?

Personally, I don't think a loan at 12% is worth the perk of being non-recourse if you could obtain a loan at 6% by giving a personal guarantee.

On a large loan the savings could be substantial and if the properties can easily cover the debt as you say why would you pay more than you have to?

@Bryan you're cheating. In this example I said the cash flow easily covers the debt payments.

@Darryl let's assume a million dollar loan.

"why would you pay more than you have to" One reason, the lender could not go after you personally for a million dollars if things go wrong.

A 12% note on a large loan is absolutely nuts anyway you slice it with the current cost of money.

Good grief!!!!

6% hands down! If it cash flows well (covers debt service @ 12% I should say)then at 6% you just need a good 6- 8 months to build up some decent cash reserves (which you should have some coming out of closing anyway) as you should be banking a nice amount at half the interest rate.

Lenders who specialize in lending to self directed IRA's offer non recourse loans routinely for between 6 & 7 % up to 70% of value based on rental income and sufficient reserve even with poor to no personal credit. While your strategy is not within an IRA 12% seems excessive.

Well John, unfortunately reality is a little more complicated. The loan involves cross colateralization of a few dozen lower income properties. Although I am leaning strongly toward the lower rate, there are advantages to not having a million dollar loan on my personal credit. The properties cash flow really well and could easily absorb the additional 60K. I'm concerned if I sell my primary residence and try to buy another house, the million dollar loan may prohibit me from getting another loan. On the other hand, if they are going to take the large loan into account I would hope they would consider the strong cash flow beyond my debt payments.

You may also want to consider the possibility that you might be able to refinance into a non-recourse loan down the road (typically in a year once most lenders consider any equity in the property to be yours).

Banks are sometimes more willing to offer a non-recourse loan on a refinance than on a purchase so it may be worth talking to your bank if that's something they'd be open to.

This is usually due to the LTV is more in their comfort zone since they can lend off the appraised value, not the purchase price.

You will also have a years worth financials under your belt which can make you a safer bet to a lender if you've kept the property operating in the black.

I still think a loan at 6% compared to 12% is a no brainer, but if you are really concerned about the recourse avenue I thought it worth mention that you "may" be able to refinance in a year into a non-recourse loan.

Chris, the loan is cross collateralized only among the properties I want the loan for.

That is a very interesting concept and would love to know how that works. Maybe this is in the commercial world which I don't knwo too much about but still would like to hear how it works.

There are plenty of lenders that will let you use property as collateral that are not directly involved with the loan. You are only limited by how much equity is in the property. An obvious example is to get a home equity line on your primary residence and use it to purchase rental property.