I’m looking to get my first investment property but I don’t have 20% cash to put down unless I take it from my home equity. Is that a good way to start out?
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
7mo
This structure increases risk because of the leverage being used—it’s effectively 100% financed. Especially when purchasing your first investment property, downside protection should be the priority. Many investors focus almost exclusively on upside and are willing to accept riskier leverage to make a deal work, but that approach leaves very little margin for error.
A better option may be a joint venture with a capital partner. Bringing in equity reduces leverage and gives you breathing room if costs increase or timelines prevent the repayment of the equity line. Early on, avoiding a bad outcome matters more than stretching for the highest possible return. Even better if you can partner with a capita partner who has experience. You can learn while reducing your personal risk exposure. Best of luck.
Real Estate Broker · Nederland, USA · Member since 2024 · 36 posts · 16 votes
7mo
Hi Brad, I’ve been in that same position, and the most viable path is to find an investor who can bring the down payment and structure a joint venture, while a lender finances the rest of the deal. From my experience in that situation — hope it helps.
Investor · Austin, TX · Member since 2021 · 497 posts · 126 votes
7mo
Using home equity can work, but it increases your personal risk because you are tying your primary residence to an investment. The key question is not just can you do it, it’s whether the deal cash flows enough to comfortably cover both the new mortgage and the equity payment.
Many investors start this way, but it works best when you have strong reserves and conservative numbers.
Are you looking at a specific property already, or just exploring the idea?