Using Equity for a Down Payment

2 Replies

Hi Everyone!
I'm sure it's been done before (and I'm sure there is a BP book about it), but I wanted your opinions. I'm looking to purchase a multifamily (2-3 family), but I don't have much cash to put down. The mulitfamilies in my area run from $500-800k. I do have almost $200k in equity in my home. My plan is to use that for a 20% down payment on a conventional loan. My questions are :

1. Is that a good idea? Is there a better method for someone doing their first deal?

2. If I were to start an LLC, could I still use my personal equity? Would I still be liable personally for my home equity loan?

3. In your experience, is it hard to find deals that work when you are borrowing 100% essentially? 


Thanks!
Ben

Hey Ben!

You could access your equity with a HELOC and use that for all the costs of a private mortgage. Just realize that if the market turns and home prices deflate you will be upside down on your primary. This is a risky place to be in.

We live in Massachusetts, so if something went wrong and your tenant stopped paying on the rental and you can't evict right away would you be able to keep yourself a float with 3 mortgage payments? 

@Ben Healy I would be concerned about a Heloc to buy a hold because of the nature of Helocs. I would do what people and myself are doing with their multis with equity. Perform a cash out Refi on your own home to bring you back to 25% equity in your home. The rest can be taken out to be used as a downpayment for you multifamily property. The nice part with this too is it is now your cash and can be used to buy in an LLC if you desire and if your loan officer allows it. Some loans wont lend to an LLC so you will have to buy in your personal name if you are doing that. I recently had to do that in Cleveland. I dont know of any lenders that will give you 100% loan unless you are using a VA laon (USDA may work too). This is a risky venture for the lender as you can just walk away from the property and let it forecloser, losing no money. Banks dont like foreclosing and holding property. I live in Central Ma. If you ever want to talk shoot me a message and we can meet up. Ill be glad to figure out how I can help