Use my current home to fund my next deal?

4 Replies

Hi all, How can I use my current rental SFH as a down in my next deal? Can I put up my house for collateral to fund a duplex deal? How does this strategy work? Is it even possible? The equity is slim does that matter? Thanks Dennis

Yes @Dennis Standers you could use one house as collateral for another but you need sufficient equity. Its called cross collalateralization. As an example. If your SFR was worth $200K and you had $100K in equity, you could use $50K of the equity for the down payment on the duplex. Assuming cost of the duplex was $200K, the $50K would give you the 25% equity needed for the duplex getting you the property with no money down. If the cost of the duplex was $400K you could still use the $50K from the SFR but you would still need to come up with another $50K. Equity is the key. Banks typically won't allow you to go below 25% equity in any one property.

@Dennis Standers Is your current "rental SFH" the same as "(your) house" - you live in? Are you "house-hacking"?

I agree with @Rob Beland that if your "equity is slim", new funding could be a problem. Depends on just HOW "slim". All the best...

Thanks Brent, And Rob, No not living in the rental, we are renting a 1 bd apt. The house has a tenant. The equity would be about 10,000 by the time we are ready, but that depends on the actual appraisal.  So ? about being able to do anything?

@Dennis Standers It seems to me that your lender will look at the duplex "deal" on its own merits, so you may have to qualify in much the same manner as you did for your first SFR.

It's good to have the dream for each deal to be "bigger and better", but lenders (rightly) get very nervous if you go back to them for more and more before achieving a provable significant equity and/or savings build-up. All the best...

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