Leverage Primary Home & Loan Against Personal Business?

2 Replies

Hi All,

I am close friends with a couple and I would love to see them create an asset by holding on to their primary home. I've brainstormed ideas with her about various financing options ... but I'm afraid I simply don't have the experience to provide any real solutions. I am hoping that someone may have a great idea out there! Here is the scenario ...

Primary Home ~ Value $500k with approx. $175k in equity. She owns a hair salon business (2 yrs old). First year broke even, 2nd year showed net profit of $40k. She pays herself a salary of ~ $75k/year. He is employed by a company also showing $75k/yr.

They are looking to upgrade to a larger home and need the down payment. Estimate cost of new home is $800k and will require 20% down. They have $30k in savings so they are $130k short.

Couldn't they loan the $130k against their primary home? And/or against profits of the business? In your experience, would the bank mortgaging the new home frown upon this?

Their existing home is in a good rental market in CA and they would be in the positive immediately. I want everyone to have success in owning rental property so really appreciate any creative ideas you may have!!

Many thanks in advance!

Lorraine

First and foremost a couple possibilities. i would look into tax credits for the business. and if your friends business can possibly receive some. In addition i would check to see what their current house would rent for to give a bank a potential revenue generation for that house. Any lender is going to look at their current debt to income ratio to evaluate a loan. If they have no debt besides their primary resident. They could possibly leverage by refinancing to 70%, of LTV, however this is what i consider a high risk investment doing it that way. In my opinion i would try to reduce the primary mortgage to create a better cashflow before stepping up to a larger mortgage, and still having the primary resident.

Thanks @Jonathan Wilks  ! I agree. I suggested they stay put for another year or so to save more cash and put themselves in a better position to hold onto the primary home. I wonder what will happen to their interest rate on the new home when they have leveraged 70% of their primary. Plus they'd have to look at the monthly payment on the new home + the refinanced portion and whether that would be affordable. Really appreciate your chiming in ~ thank you!

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