Is it a smart move? Getting a personal loan to cover closing cost

3 Replies

Sup yall! I'm a new investor with one property under my belt. I have a fourplex I got for 150k in Tuscaloosa, AL and I'm living in one unit and renting out the other three. I'm saving $1000 a month from not paying rent. I'm saving the freed up money to get another property and do minor improvement to my property. 

Okay my situation. There's a duplex located next to my property and the owner wants to sell it to me for 60k, down from his original price of 70k. The duplex appraised for 105k so I would be buying into equity. He wants to sell it quick because he is retiring this year. He is renting the units out for $475 each which is cheap because my units rent out for $550 and we both have the same sq footage and number of bedrooms/baths. Here are the numbers:

  • Appraised price: 105k
  • Selling price: 60k
  • Estimated closing: $15,920
  • Rehab: unknown haven't gotten an inspection yet. Plan on fixing as I go since current tenants report no problems after talking to them
  • Rent: $475(2 units) with current tenants. Can rent for $550 each
  • Cashflow after expenses on $475 rent: $55 per unit
  • Cashflow after gradual rent increases to $550: $97 per unit
  • Cash and Cash return: 8.3% without rehab numbers 
  • ROI: $237.4% without rehab numbers

I don't have $15,920. I have a personal loan of $9,841, of the $12,200 total loan, in my bank account from a failed unrelated business venture that I'm paying $200 a month for that I can use: 

Questions: 

  1. Would it be smart to take out personal loan to help pay the purchase cost? I can cover the loan payment with my personal money but is it smart to tie up $200-$400 a month of my personal money for 5-7 years. This wouldn't affect the $1000 month I'm saving already. 
  2. Is it smart to invest in the property based on future cashflow because currently the cashflow isn't the minimum $100 per door?

Thanks!

@Edwin K. Before you access a personal loan or LOC contact your lender to ensure it is acceptable. We have many programs that do not allow any portion of the down/closing to come from debt and I suspect your lender may as well. Good luck!

If you can’t afford the closing costs, you can’t afford to buy the house, period.

Just to give an update I decided to walk away from the deal because the duplex needed a lot of work I mean full gut and I didn't think it was worth the price he was selling it for. @Blair F. I disagree it's not like I had none of the closing I had majority of the closing cost. I like to find creative ways to make the deal work as long as the numbers work. 

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