Using HELOC or Cash-Out Refi for Down Payment on Apartment

2 Replies

Hello BP community,

I want to take advantage of the equity i've built in a couple of my properties (one is a rental and fully paid off. The other is personal residence and is 70% paid off) and use it as a downpayment on an apartment building. Based on my research, I could pull out equity via

  • Cash-Out Refi
  • Cross-collateralize both properties into a single loan and pull equity

From a commercial lending standpoint, could I use any of the above methods as a downpayment? 

My concern is that although I pulled cash out, I essentially took on more debt. Not sure if commercial banks allow investors to do this. If so, would the extra debt from a HELOC or Refinance just affect my ability to meet the underlying net worth requirements?

Would this work with Agency debt, specifically Freddie Mac Small Balance program?

@Josh Domingo Sure, you could use them as a down-payment. Most lenders will ask to see your bank statements so doing a cash-out refinance awhile before you start the process would probably work better than a HELOC so you can show you actually have the down-payment ahead of time.

In any case the extra debt will affect your ability to meet the net worth requirement. If you borrow money on an asset your net worth does not change. For example, you own a $1 million property free and clear. Your net worth is $1 million. You take a cash out refi of $500k on it. Your net worth is now $1 million - $500k debt = $500k + $500k in cash = $1 million.

You should create a personal balance sheet and income statement and keep it updated in this process.

Most lenders including Freddie will also want to understand your experience with the property you're considering and if you don't have any, consider partnering first with someone that does.

@Jeff Kehl Really appreciate the feedback. Working on my personal balance sheet right now and will definitely look into doing a cash-out refinance sooner in the process. Thanks again!

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