Use a car loan for down payment

29 Replies

I have the opportunity to acquire a vehicle at an incredible discount. The purchase price would be 2750 and the retail value would be 8300. A local bank has run the numbers and I can put a car loan on the vehicle for up to 125% LTV for a loan of 10,375. Subtracting out the 2750, that leaves me about 7600 I can cash out of this loan.

My question is this - would I be able to use that as contribution on a down payment on a property? I'm not sure if this is even legal, using a loan as down payment, but I thought it would be a great opportunity if it is. Essentially I would buy a car that lets me buy a house that pays the house and car off!

Anybody have any insight into this?

Once you get the money then it’s your money. After that, it all depends on if your DTI will allow you to qualify for the RE loan.

Make sense?

Do you not even have $10k,cash?

@Robert Freeborn that does make sense. I just didn't know the legalities behind it.

@Jeremy Hua I never said I didn't. I simply asked if this cash is able to be leveraged.

@Nathan Rude what kind of property are you looking to purchase? Unfortunately, you won't get far with $7500. For a conventional mortgage, you won't be able to borrow the down payment, so that is not really an option. A hard money loan will require much more cash than that, so your options would be to partner with someone that has cash on hand, try wholesaling, if that's your thing, or skip the auto refinance and save, save, save.

@Jason DiClemente it would probably go towards a 30k SFR. I'm not really sure how this isn't different from a cash out refinance.

@Nathan Rude $7500 won't leave a lot, if any, cushion if it doesn't go exactly as planned. At that price point you won't be using traditional financing, so I would make sure you have everything lined up before taking on unnecessary debt.

You need about 4-5K for closing cost etc.  Put $ in the bank if it is yours to keep.

I tend to be more blunt on any forum I'm on, so with that being said, a $30k house is a dump. That's not the space you're able to play in, and I would leave that to the ones with bigger pockets.

It feels like you saw a Grant Cardone clip, and want to leverage your refrigerator. Taking a personal loan out against the equity of a vehicle isn't what he meant. The vehicle is going to going down in value, every mile. That's the difference between doing a cash out on a property, vs a depreciating asset.

Buy the car, sell it for profit. Don’t take out a car loan on it.

@Jeremy Hua

I started off leveraging in any way I could to buy real estate about 7 years ago. I quit my job with 28 units almost 4 years and now have 64 units. I’m making considerably more money than I was working and I expect more than double my income over the next 5 years.

As long as he’s making good investments I don’t see a problem with his strategy. You gotta do what you gotta do to get to where you wanna be. No two paths/situations are alike in this business. Even if he least he’s getting off the couch. I’ll bet somewhere around 70% of the people that join BP never do a deal or at least don’t do multiple deals.

Originally posted by @Caleb Heimsoth :

Buy the car, sell it for profit. Don’t take out a car loan on it.

That was my thought when I was in the shower.

That's what I would do.

Make that 63 units. I just sold a house that I bought last January for $17,500 with a $1000 down for $33k a couple of weeks ago. A house that it sounds like you’d recommend a newbie not to pursue 🤷‍♂️

do literally anything besides taking out a car loan lol.  Save money buy house.  Repeat.  I’m 3 properties in and I’m 23.  Imagine what could be done by 30.  

@Jeremy Hua I’ve bought one of those 35k houses.  I wouldn’t recommend it to total newbies but if you educate yourself it doesn’t have to be overly risky 

Thanks for the suggestions everybody! This is the first time I've ever been in this position before so I wanted to know what my options were, even if they were bad! Sounds like the general consensus is to not pull out equity from the vehicle.

Hey Nathan, 

I hate to be the debbie-downer but you can get into some serious legal trouble with car loans and putting it to anything other than cars. Car loans are much like mortgages where the car is used as collateral for that loan. So, you can be liable for loan fraud and not to mention you can't really use borrowed money as a down payment. My suggestion to you is to read "The Book on Investing in Real Estate with No (and Low) Money Down" if you are strapped for cash. Your mind is in the right place though!

@Noel Challenger that's exactly why I posed this question. I'm definitely not looking to do something that would get me into trouble! And thanks for the book suggestion, I'll be sure to check it out!

@Nathan Rude at one point, I took out a "refinance" auto loan against a paid off truck I used in my service business. I invested that money into the business and it helped grow the business so I don't regret it....but it felt incredibly Amscot-sketchy nonetheless. By the time I traded it in in 2014, broken and worn out, I had it paid down to about even with value. I ONLY did it because otherwise I would have taken out an equally sized personal loan for the same investments in business (marketing, branding, etc...intangible costs but definitely paid back a great roi). The truck as collateral saved me about 5% interest and terms were both 48 months whether or not I put the truck title on the line. I felt putting the business truck as collateral for money that I'd spend on that business was a smart choice given few other options. However, if you don't need the car or could find a reliable car for $3k, why pay interest on a loan and take a DTI hit? Your discount/profit on the car will diminish over time too. Buy the car, detail it, throw some new tires and brakes on it, change the oil, wiper blades, and try to get $9k. Take your $3k and buy an old Corolla or something for cash, and take $6k and put it in savings or wherever you want. No interest paid, no unnecessary car payment on your credit.

Flip This Car

@Nathan Rude @Noel Challenger

In this example it sounds that his lender fully understands that he is getting extra cash. Disclosure means that there is no loan fraud here. It’s really no different than if he already owned this car free and clear and went in to borrow against it.

That said, I like the idea of flipping the car!

Wow very creative!!!

I did this to purchase a SFH home that was about 100k in a up and coming small town in Central TX. I owned my car free and clear, managed to get a loan for 30k at 2%, used most of that for DP and repairs. So with nothing out of pocket (directly at least) I was able to secure a rental property that rents at 925 now with potential to increase.

But the only reason I did this was because I had recently used my cash to purchase two other places and couldn’t pass up on this one.

I would avoid houses in that price range unless you plan on doing a year down to the studs or complete rebuild.

@Nathan Rude I did exactly this when I bought my first house. I was upfront with both lenders about what I wanted to do and they were ok with it because the loan was secured by collateral and I still met the DTI requirements.

@Noel Challenger you may want to do a little more research before making such a blanket statement regarding fraud. Your state may have strict requirements making it fraud there; however, it is perfectly acceptable and often times viewed more favorably than an unsecured loan for the very fact that the loan is secured by collateral. In order for it to be fraud he would have to take out the loan, use the cash to finance something else he otherwise wouldn’t have been able to and immediately default on the vehicle. A lot of people got in trouble for doing this with houses after the market crash. They would be underwater on their primary home, having bought it before the crash and buy a new primary home and then, after closing on the new house, default on the first property. It was fraud because they wouldn’t have qualified for the second note if they had defaulted prior to purchasing the new house AND the second home was purchased with the intent to default on the underwater property.

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