margin loan as down payment for hard money loan?

Question

Hi! I am looking to purchase my 3rd investment property but I am tapped out on cash for a down payment. I do have ~$250k in a stock portfolio and just learned about margin loans. I'm wondering if I can take out a margin loan to borrow a down payment for a hard money loan (my understanding is usually 20% down is needed for a hard money loan). My plan is to find a property that is somewhat distressed/outdated/needs renovated so I can improve the value and then refinance it with the goal to pull out enough money to pay back the margin loan and what's owed on the hard money loan. Does this seem like it could work or am I dreaming?

PS: my DTI will not allow for any type of 2nd home or investment loan so that's why I think I need to go with hard money

Thanks so much for any insights! :)

Lauren

PS: my DTI will not allow for any type of 2nd home or investment loan so that's why I think I need to go with hard money

Thanks so much for any insights! :)

Lauren

David M. · Answer

@Lauren Holmes

a HML might not care that its coming from a margin loan.  However, after reno is completed, how would you refi the property into a standard loan to pay back the margin and hml?  You just said you have no cash reserves and DTI won't support another loan?  Honestly, your lender shouldn't even give you the hml since your exit strategy appears to have a problem.  A "good" hard money lender would also pre-qualify you for the conventional loan otherwise your exit strategy, in this case, won't work.

???

Henry Lazerow · Answer

I have had clients do it but don't go overboard on it. Keep the margin % very low (20%) so impossible to get a margin call outside if we have a nuclear war lol

Lauren Holmes · Answer

Update on our plan: We are going to take out a HELOC on our primary residence for the down payment on a DSCR loan (& take out as much as we can on the HELOC to pay for some cosmetic renovations)

Lauren Holmes · Answer

David thanks so much for your reply. Great point! We did not think of that.