Taking a personal loan to purchase a home

12 Replies

So I found a deal for 45k on a single family home valued at 75k. Since the home is under 50k I struggle finding a bank to finance the deal as an investment property. So I applied for a personal loan at 10.9% apr over 84 months. With the idea of doing a refinance cash out loan in a year. Some pros: I get to avoid putting down 20% and having 6mo reserves on investment property. This is my first deal, am I on the right track or missing a key component? Daz

Sounds like a winner to me.  The interest rate is higher than conventional financing, but like you said, you won't get a loan until it's at the higher amount.  So, as long as the rental rate covers it, I don't see anything wrong with your plan.  You may also get the tax deduction for the interest.

The only other idea I would suggest is if you have a 401K.  You can borrow against that usually, and the interest is usually 4-6% that you are paying back to yourself.

Many small investors use a loan or home line of equity to start a business. HELOC is treated as cash and has an edge over a mortgage or loan. Quick closing.

Good call on the 401k to borrow if you've got it. You could certainly get the personal loan and then transfer some of that to intro rate credit cards.... fair to say I'm a pretty big advocate on credit card usage because I do mobile homes so I run into the financing issue from banks the same as you. 

For example, something I would consider but not telling you to do it, put your 45k on the personal loan. Before this has been done you've gotten access to buttloads of credit cards many with a 0% intro rate for x amount of months. Then you can start to transfer some of the 45k onto those cards at 0% for 12ish months. Key is to make sure you track those carefully and either payoff the cards or transfer to another 0% offer. Keep in mind, this does mean your credit needs to stay okay-good so I don't recommend it for people who are recovering from high debts.

I didn’t think about the credit card aspect. I do worry how that would affect my credit score.

@Dazrell Fleming that is not a bad idea. 11% interest is the same or lower than most HML, and with no points. Think a little about the future when you attempt to exit. If your ARV is off then you may have buyers with the same problem as you: no banks to lend to them! At that point you have a property with a high interest loan and it needs to be something a bank can refinance long-term for you and support a tenant.

If you do the credit card swaparoo game, be very careful. If the market turns you may not have ready access to get another 0% card. The 401k loan is a very good option, but keep in mind that at a 5 year amortization those monthly payments can get fairly high even with a low interest rate. Not to say it is bad... I have a property from a 401k loan, just something to keep in mind.

Best of luck.

@Dazrell Fleming What are the rents in this neighborhood? Your best (i.e. safest) bet would be to make all preparations necessary to have this rented out asap (assuming, this is a cash flow property). Automatically, your loan bills starts getting paid. I would aggressively pay down your loan bill (high interest rate) as when you're buying more houses, your existing loan balance will count against you. If you have a lower rate - akin to conventional financing - I would suggest you let it run and enjoy the ride. 

That being said, I would dissuade against credit card game. As @Bryan O. has pointed out that's a risky game to play. Furthermore, in most cases, you don't get to transfer balances for free (this is the point most people miss). There's always charge (there is no free lunch in life). Furthermore, at the amount of money you are "borrowing", you will be substituting a lower interest rate for a much higher interest rate without giving yourself any room to maneuver in case things go sideways (and they often do). 

You've managed to land a great deal. Why put that in jeopardy? Stay safe, enjoy the ride :)

@Omar Khan the home is coming with tenants willing to sign a two year lease and accept the rents raise from 650 to 750. The arv is 75-80k so I shouldn’t have any problem finding a refi options.

Stupid question. But how do you reply to someone. I tried using the “@“ and then spelling the person name but that didn’t work?

Any interest in seller financing?
You could put down 15% through a personal loan and pay 8% to the seller. Seller gets more money, you get a lower rate, and if you bank roll he income from the property pay it off early to save more.

@Dazrell Fleming Assuming you've run the #s on your property, properly vetted the tenants (very important - you can get a tenant, they just night not pay you) and after accounting for ALL costs (including paying back interest, principal, cap ex reserves and a reasonable cash flow #), if you still make money, then I would suggest signing a 6 moth lease with tenant with first option by tenant to renew twice for 6 month periods at a higher rent. I.e first 6 months at 750, then you can either bump the rate up or give them a "incentive" by saying they can renew for the next 6 months at the same rate or same rate + increase in rent. At the second renewal, you will raise rents. The only reason why I would be hesitant in signing a 2 year lease is because what if you don't like the tenant or there are issues. What do you do then?

You're doing the right thing by typing @. Just type the first letter of someone's name. In my case type @O and a menu should popup which shows my name, click on it and now I will be tagged. If you don't do that, there is no way for any posted to know what you're doing. You can always "like" a comment (if you think it's worthy) and that's another way of alerting a member to activity on this thread. 

@Omar Khan I was using the mobile app and it doesn't support "@" i guess. Good point on the 6 month lease incase the tenant and I don't see eye to eye. I've ran the numbers using to BRRR tool. I also looked at how much I'll pay in interest with the personal loan and added those numbers. Shockingly this could be a deal where it doesn't cost me anything after the firs year.

@Dazrell Fleming The mobile app leaves a lot to be desired. Surprising considering BP offers a great overall experience and has an excellent community-outlook towards its users. 

To play devil's advocate, there is no free lunch. Every real estate deal costs money. Essentially, you might not be paying monthly costs because your costs will be lumped together. For instance, your boiler might work perfectly for 4 years but blow up in Year 5. For the first 4 years, you paid nothing but suddenly have a big bill in Year 5. Hopefully, that doesn't happen to you, but I just wanted to point it out. 

Nonetheless, if the #s work (rehab cost estimation will be your biggest challenge), go for it. This will be a great asset and you will learn a lot along the way. Best of luck!

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