Home equity or cash?

Question

What would be a better option for the 20% down payment on a commercial property - using all cash or taking out a home equity loan or partial of each?

Using all cash would hurt my reserves, but would be able to cash flow better on the deal. Using a home equity loan would obviously save my cash reserves, but limit my cash flow to pay both the commercial loan and the home equity loan back.

Account Closed · Answer

Pretty obvious metaphor. Do you want to nail it or get screwed

Henry Clark · Answer

@Jacob Stahl

Also match your finance method to your investment time horizon.  Don’t do an ARM with a long term investment.  If your doing a fix and flip, maybe an ARM

Jacob Stahl · Answer

@Blaise P.

Hey, thanks for the insight!

Jacob Stahl · Answer

@Henry Clark

My mention of using an ARM in a previous post was for a different property. We did end up purchasing a single family rental using a 10 year ARM, 30 year amortization rate last year.

The property we are looking at now is a 5 unit flex space/storage building with 1500 sq ft each unit. Working through it with our lender, the commercial loan would be a 5 year balloon product at 4.9%, amortization rate of 20-25 years.

Again, we have the cash for the DP, but also thought about using some of the equity in our primary residence (not paid off) for part of the down payment as to keep a healthy cash reserve. Possibility 50% cash and 50% from the home equity, still trying to decide.

Thanks

Elina Aske · Answer

Did you figure it out, I’m wondering the same.

Jacob Stahl · Answer

@Joe Villeneuve

Thanks! I agree, it would definitely depend on deal specifics. I was just trying to get broad idea of anyone on here has ever done a deal with this method. I guess a better question would have been has anyone ever used their home equity (fastener) for a down payment in a deal? And if so how did this result in the return of the deal?

Jacob Stahl · Answer

@Mike Dymski

Thanks for the reply! This strategy is one we (me and my wife) have discussed as an option. I guess I just wanted to chime in on BP to see if we had similar thought processes of other more experienced investors.

Jacob Stahl · Answer

@Joe Villeneuve

Could you better explain your analogy and how my question is similar?

Home equity or cash?

Most Popular Reply