Rental Property Investor · Sacramento, CA · Member since 2017 · 202 posts · 82 votes
Should I use a private money lender or pull money out of my current investment property to use as a down payment to purchase my first commercial multi family (5-10) unit property in Sacramento, Ca? I've just spoken with a lender today and he told me to look into a heloc and pull money out of my currenty investment property, I can easily pull $200,000-$300,000 out of the house. Or should I use a private lender?
The Pro's of using equity in an investment property would be a lower fixed rate preferably over a 30 Year amortization. You also have immediate access to the cash meaning liquid reserves. When you buy commercial they will require liquid reserves and using a HELOC aka Open end debt loan can be a deal killer. Remember the lender submit the loan to the credit committee and underwriter who will evaluate the risk. So taking money from a HELOC which is a debt basically a credit card is riskier than from a savings account as liquid reserves. You commercial lender may have a 12-24 month liquid reserve requirement in order to close that you may not find out until your close to closing.
You also avoid having multiple tradelines which can hurt Fico scores and a higher DTI due to dual payments. You should shop around no matter what to get the best rate and costs. Also find out if your lender is going to waive the appraisal and offer an AVM or order a full appraisal at your cost. There can be a lot of mistake made in those two scenarios as well like Max LTV, Fee's, Max Cash out....
@Michael Williams I'd definitely recommend HELOC or private money mainly since the rate will be much lower unless you have a family member that's willing to loan at a low rate. HELOC rates should be in the 4 - 4.5% range depending on the LTV