Using a line of credit, Good or Bad....

10 Replies

I have a line of credit and would like to know if it is smart to use this line of credit for a down payment on my first investment property?

Everything that brings you closer to you first property is good ;-)

Originally posted by @Stephan K. :

Everything that brings you closer to you first property is good ;-)

 Depends on the terms.

Its a basic loc with a 7.25% APR...

@Steven Lacy

LOCs are great because it's basically cash. Idk what your strategy is, but if you are buying and holding, use it to buy rental property and then refinance it out asap. Find a banker that will work with you on this. The banker I use refinances rental properties right after I close with the line of credit! If it's a flip, then it is still short term and you can eat the APR and still be okay

IS this a flip or a hold? If a hold, what are your payments per month for the amount you are pulling out of the LOC...and how will that affect your cash flow?

Originally posted by @Devan Mcclish :

@Steven Lacy

LOCs are great because it's basically cash. Idk what your strategy is, but if you are buying and holding, use it to buy rental property and then refinance it out asap. Find a banker that will work with you on this. The banker I use refinances rental properties right after I close with the line of credit! If it's a flip, then it is still short term and you can eat the APR and still be okay

I'm a big fan of refinancing out, but he's using this a a down payment. He may not be able to refinance this out if the balance of the purchase is also a loan. IF this is a 20% down from his LOC, and 80% conventional...he can't refi..there's nothing to refi.

@Steven Lacy

Always do the math!!

If the property you are looking at is going to pay you $210/month and 17% Cash on Cash, AWESOME!!

... unless you have to spend the first 10 years paying $230/month against the line of credit you used to make the down payment.

Where the money comes from is not important.  The rate and the term are the big deal.

If the numbers still work while you pay down the line of credit, yes, it is a good idea.  If those extra payments are going to move the numbers below your minimum investment criteria, then no, it is a poor way of funding a down payment.

I've been running a lot of numbers lately after getting an offer for a blanket loan on a few properties I own outright. 7% is very hard for me to get excited about if I plan to hold for any length of time. What you are talking about is a down payment, so if you can get 80% of the property financed at 4.5% and use the LOC for the other 20%, your effective interest rate would be much easier to deal with. As these gents above have said, it's all about the terms.

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