Refinancing a car to get down payment?

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Refinancing a car to get down payment?

Justin Reid
IL · Member since 2018 · 22 posts · 4 votes

I have a 2nd toy car that I have a loan on, but am equitable in. A property came up just a few houses down from my current rental and I think I can buy it right, but I don't have the cash for the down payment at the moment. (Big tax bill last year & engagment ring purchase. My lender wants to see 15% down and I have that amount in my 2nd car. 

Thoughts on approaching my credit union that has the car note, applying for a loan that is higher than the payoff, but still less than the actual value to get the cash out of it and use for the rental property down payment?

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Anthony Wick
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y

@Justin Reid Let me get this straight. You don't have money for an investment because you owe too much on a "toy car" (I'm not even sure what that means), you owe back taxes, and you just bought an engagement ring? You need to get control of your current debt before you worry about taking out another loan. Sell the car, downsize the ring, pay off taxes, and start over. 

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  • Ryan MurdockPro Member
    Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    Will your real estate lender still approve a loan if you refi the car? It may push your debt ratios to the point where you no longer qualify. Might want to confirm that before pursuing it much further. 

    Or, sell the car and the ring :-)

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Justin Reid I have not heard of any banks that will do a cash out loan on a vehicle before. I think those really high rate "title loan" companies can do it but DO NOT go there to do this. Are you familiar with the BRRRR method? The BRRRR method is designed to tackle this very issue.....out of pocket expenses when purchasing a home...including the down payment.

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  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Andrew Postell how would you use the brrr method to pay for the down payment of the rental property. He could definitely get a LOC or refi his primary residence but that's not BRRRR.

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  • Mike Roy
    Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
    7y

    @Justin Reid - I heard Robert Kiyosaki say recently that he bought a boat by first buying a self storage facility and using the cash flow to make the boat payments.  If it's good enough for him, I'd say sell the car, buy the asset, and use the cash flow to lease something nice if you really need that second car.

    1Reply
  • Justin Frank
    Rental Property Investor · Tacoma, WA · Member since 2018 · 244 posts · 140 votes
    7y

    Hi @Justin Reid

    I have done this several times. In fact I own my truck outright and two weeks ago i pulled out a loan against my truck for a down payment on an investment. Auto loans are cheap so to me if it gets you into a solid investment it is worth it. I generally will hold the loan on my truck for down payment for much less than the actual loan term so I don’t pay much interest. I would say it is a great way to come up with a down payment. Just make sure you have a plan, and you aren’t over leveraged to where you can’t not afford the monthly payment. Good luck 

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  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Justin Reid Let me get this straight. You don't have money for an investment because you owe too much on a "toy car" (I'm not even sure what that means), you owe back taxes, and you just bought an engagement ring? You need to get control of your current debt before you worry about taking out another loan. Sell the car, downsize the ring, pay off taxes, and start over. 

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Jordan Moorhead the BRRRR strategy centers around BUYING - buying a home in a challenged state from a motivated seller. Then you RENOVATE that home to bring it to a higher value. So if the ARV of the home is $100k....and there was $20k in renovation work, you would want to make your offer around $50k-$55k. Mainly because your acquisition loans will all cap out around 75% LTV. So if you buy and rehab at 75% LTV...then, in theory, you would have $0 out of pocket. Admittedly, it doesn't generally work out that nicely but it's not unusual for someone to buy and rehab at 80%...so 5% out of pocket. Then you RENT the property so you gain the rental income when you qualify for your REFINANCE step....then REPEAT. That's it in a nutshell.

    @Justin Frank thanks for the feedback that you have done this several times.  Are your rates reasonable when you do this sort of a cash out loan on a vehicle?

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  • Justin Frank
    Rental Property Investor · Tacoma, WA · Member since 2018 · 244 posts · 140 votes
    7y

    Hi @Andrew Postell

    The interest rate i received have been right on par with what a used vehicle loan would be. My credit union just treats it as a refinance. They will loan up to 100% of the NADA value. Of course the closer you get to the total value of you vehicle the rates will go up but if it comes to being dynamic when purchasing real estate I have found this is a great strategy. This most recent refinance on my vehicle I took out $30k (90% LTV) at 3.99% for 72mo and the only fee was about $120 for a title transfer back to the bank. I will only have this loan with my credit union until the end of summer when I will be able to pay off or finance back out so I will have a very small amount of money that's goes to interest. To me it is a great purchase vehicle without diving in and tie up my liquid capital. I'm sure there are many different opinions on this.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Justin Reid terrible idea. Sell car take cash. Cars are not assets

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  • Justin Reid
    OP
    IL · Member since 2018 · 22 posts · 4 votes
    7y

    @Anthony Wick, 

    I think you misunderstood. I don't owe back taxes. It's this years tax bill I just paid. And my car is worth much more than I owe on it & I'd like to recoup some of that cash to use towards the down payment for my second rental. I also paid cash for the ring.

    So, between the check I wrote for taxes & the check for the ring, I’d rather not dip into my savings any further. 

    Using the equity in the car to put towards an appreciating assent that will generate additional cash flow seems like a good idea to me unless I’m missing something? 

    And I’m not doing a title loan. I’m going to my CU and basically taking  out a loan to pay off the current  loan & use the extra for the down payment. 

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  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    7y

    @Justin Reid

    Taking on more debt on a liability to buy real

    estate could be a good idea but I'd get rid of the first or second car. Maybe share the fiancees car for primary purposes. Just because a bank will lend doesn't mean you should borrow and if you are serious about real estate investing its a small sacrifice to make.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    Would you be buying the house to live in?  If so, how does the mortgage compare to your current rent?  Also factor in property taxes.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Justin Reid also the ring you just bought is likely not worth what you paid for it. If it’s a diamond, Diamond’s are very overvalued relative to what you pay. Don’t believe me? Try to resell it back to the jeweler. Again it’s an emotional purchase which is fine, but it won’t generally increase in value

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  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y

    @Justin Reid I would say that unless it's a car that will appreciate in value, sell it instead of getting a loan on it. If you're successful in real estate, you can buy the car back

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  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Andrew Postell I know what it is. Sounds like he doesn't have the down payment to buy and is looking for ways to find it. BRRRR requires cash to get going. I just did a successful one but will have put almost $100k in it to make it work out.

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  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Justin Reid

    Then I have a follow up question. Why are you keeping the car? Does it appreciate more than real estate? I know people enjoy their cars, but if it’s not an appreciable asset then I am not a fan.

    0Reply
  • Justin Reid
    OP
    IL · Member since 2018 · 22 posts · 4 votes
    7y

    The car is an older Porsche 911, and right now, compared to my market yes.

    0Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    7y
    Originally posted by @Justin Reid:

    I have a 2nd toy car that I have a loan on, but am equitable in. A property came up just a few houses down from my current rental and I think I can buy it right, but I don't have the cash for the down payment at the moment. (Big tax bill last year & engagment ring purchase. My lender wants to see 15% down and I have that amount in my 2nd car. 

    Thoughts on approaching my credit union that has the car note, applying for a loan that is higher than the payoff, but still less than the actual value to get the cash out of it and use for the rental property down payment?

    Are you asking, Justin, if you can use these funds in a conventional lending scenario? The answer is yes you can and I have done this as well to buy one of my fourplexes I did a cash out refinance on my acura to get part of the down payment capital.

    These funds are considered secured debt (backed by the pink slip on your car) so you can use them in a lending transaction.

    The key distinction with secured debt versus other debt or unsecured loans (backed by nothing but verbal/signature/ you/ etc) you can use them as permissible funds for down payment or closing costs while the later you cannot unless you season them in your account for 1-2 months minimum so it becomes a timing and planning issue (unsecured loan/debt).

    Also the other thing to consider is how this car loan will affect your debt to income or DTI. If you have plenty of income and your DTI is really low then it will be less of an issue, however if your DTI is tight then you might want to take the lowest rate and longest term auto loan you can get to push that monthly payment down. Lenders will be using that monthly payment to calculate your DTI so its extremely important to plan and manage your DTI going forward within your real estate investing strategy otherwise you may find yourself "unbankable."

    Also, If you're self employed you can have the business pay for the auto loan so it can removed off the personal liabilities (aka not have it count in your DTI ratio) as long as you file atleast 1 year tax return showing this auto is being paid for by the biz and you have 12 months statements or financials showing the car loan is being debited out of the biz checking account. Thats a strategy tip there if you're self employed.

    Best of luck on the purchase of that investment property.

    If you have any questions, let me know. 

    1Reply
  • Joshua WattsPro Member
    Rental Property Investor · Chattanooga · Member since 2018 · 137 posts · 142 votes
    7y
    Originally posted by @Anthony Wick:

    @Justin Reid Let me get this straight. You don't have money for an investment because you owe too much on a "toy car" (I'm not even sure what that means), you owe back taxes, and you just bought an engagement ring? You need to get control of your current debt before you worry about taking out another loan. Sell the car, downsize the ring, pay off taxes, and start over. 

         Yes Sir you are not ready to be buying investment property yet. It does seem cold but you need to follow what Anthony is saying. There will be another deal for you when it is time.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Obviously the ring is a done deal, you can not sell it and it is only worth a fraction of what you paid for it. The cost is in the design not the material.

    As for the car I would not even consider refinancing. Toys come and go, sell it. Having a practical need for the money to purchase a investment means you can not afford to keep frivolous toys. Toys are for people that have no other practical use or need for money. Priorities, toys or investments. Been there done that, no regrets.

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  • Justin Reid
    OP
    IL · Member since 2018 · 22 posts · 4 votes
    7y

    So, I seeing a lot of assumptions about the ring without really knowing any details, so I guess I'll clear that up. One of my very close friends owns a couple of jewelry stores and I paid wholesale for the stone. 

    @Joshua Watts you need to go back and reread the post where I clarified that I do not owe back taxes, I simply just paid the taxes that I owed for 2018. My only debt is my primary residence and my 2nd car. 

    I am going to look into a line of credit versus a refi on the car first. The property is a small single family and is listed for $45k. I think the real number is somewhere around $35-37k, with a rental rate of $800-$850/month. I own the same house about 6 houses down from this one.

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Justin Frank that is terrific information to know about.  Thank you so much for sharing!

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  • Ruth Lyons
    Investor · Colorado Springs · Member since 2016 · 232 posts · 150 votes
    7y

    To reiterate what's been stated, cars are expenses, not assets. Sell the car and use the money for the downpayment.

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  • Gareth Fisher
    Manheim, PA · Member since 2016 · 131 posts · 138 votes
    7y

    Sell the car and put the left over cash in a high yield savings account.  (Best long term option)

    Assuming you have a rainy day fund already in place other options:

    put the house under agreement, find a partner who has the cash.

    buy it with a private money loan and do a cash out refi

    combine other properties in your portfolio to open a LOC and use that for the down payment (least favorite)

    Pass and find other ways to increase your income and cash on hand that doesn't involve borrowing more money.

    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    7y

    This is a tough subject line to read. I wouldn't recommend leveraging a piece of collateral that has little intrinsic value like that. I don't imagine a bank would love that either- even commercial lenders look at the buyer, not just the property.

    This is not the best phase of the market to invest. If you have a bunch of spare cash floating around, I recommend investing it. I just threw some cash at a personal investment outside of my business, and still cringed knowing I was buying it at a very high price, but the money was useless in the bank. If you don't have a bunch of spare change, just stack up your cash. By the time you're in a better liquidity position, maybe it might be a more favorable time to invest. 

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