Where to get the down payment?

Question

I’d like advice on where to take my down payment from.

I’ve got a paid off house I can get a heloc on

I’ve got a 401k

I’ve got a savings account

I’ve got a brokerage account (might have to sell a couple stocks to have the cash)

Which one is best to use to take about $50k downpayment and up to $25k renovation funds for a approx $250k home I want to buy with a mortgage for an Airbnb style brrr

Any advice on which avenue and why?

Marvin Harbour · Answer

@Louis Zameryka so some slightly different advice than what you were asking for. I would strongly encourage that you look at the STR comps before even purchasing that home. A 250k mortage is pretty substantial for a STR. For a 250k mortgage I personally would be expecting at least a $1,600 monthly cashflow. Which is very doable depending on what city the property is located. I am from and live in Michigan and homes that are worth 300k on average are grossing 100k yearly on the higher end. However these homes have 4 rooms and 2+ baths. The homes I am referring to are in an extremely desirable area. Whereas you can take that same home and locate about a hour away in Detroit and would be lucky to gross 60k.

Justin Carmack · Answer

HELOC - Great option. Typically interest only payments while the money is out of the account.  You can pull money out as needed so you aren't paying interest on a one lump sum of $75k.  Even if you don't use this money I would get a HELOC.  Always better to have the money "at-the-ready" should you ever need it.  If you find yourself in a situation where you need money it's already too late to apply for the HELOC.

401k - I don't like this because you would have to pay a 10% penalty for early withdrawal.  Might look at putting it into a self-directed IRA and investing into someone else's fix/flip business.  Basically you can't directly mange if you use a self-directed IRA, but you can invest.  Talk with someone that knows more that me on this subject, but it's a cool option.

Savings Account - Great option because the money is just sitting there not "working" for you.  Put the money to work and there's no interest payments involved.

Brokerage Account - Any profits would be taxed which isn't good.  You have two better options in the Savings Account and the HELOC.

Personally I would use savings and in the meantime get a HELOC in case you need more cash at some point.

Chris M. · Answer

@Louis Zameryka

I would go HELOC because if you borrow from your 401k or sell stock, you are taking your money out of the market.

Also, you can only borrow once from your 401k per yr up to 50k.  Save that as your last back up option.

Don't touch your savings.  That's your reserves and cash is king.

HELOC rates are low and you can borrow as needed and reborrow as you pay it down.

Best of luck!