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Started By
Message
Borrowing for Second Home/Vacation Property Downpayment?
Posted on 8/21/22 at 1:48 pm
Posted on 8/21/22 at 1:48 pm
Assuming a recession comes and real estate prices correct to some degree in the coming year or three, using that basic premise as a foundation for pursuing this venture... not in any way looking at anything at current market prices... and assuming this would be a vacation rental for most of the year to hopefully cover costs until a retirement scenario where we just move in...
Coming up with 20% down in cash for something that will likely cost 500k is going to be $100k in straight cash.
Now I could come up with $30k straight cash as soon as the banks open, without any conversions of assets or any of that shite, but $100k is a different level of baller.
Planning ahead- sources of cash options:
Cash advances on two existing credit cards, could get another $30k.
401k loans, not sure exactly how those work, how much they'd let you borrow on them, but currently worth around $300k if I had to guess, but also in the premise we're in a recession at this time, might not be worth as much.
HELOC on primary residence, tons of equity right now, but again, in a real estate correction scenario when we'd want to buy, might not be a ton of equity.
Any advice from Money Board?
Coming up with 20% down in cash for something that will likely cost 500k is going to be $100k in straight cash.
Now I could come up with $30k straight cash as soon as the banks open, without any conversions of assets or any of that shite, but $100k is a different level of baller.
Planning ahead- sources of cash options:
Cash advances on two existing credit cards, could get another $30k.
401k loans, not sure exactly how those work, how much they'd let you borrow on them, but currently worth around $300k if I had to guess, but also in the premise we're in a recession at this time, might not be worth as much.
HELOC on primary residence, tons of equity right now, but again, in a real estate correction scenario when we'd want to buy, might not be a ton of equity.
Any advice from Money Board?
17
Posted on 8/21/22 at 1:56 pm to deeprig9
Get a HELOC now while values are super high.
The mindset being that IF you are going to be in your primary residence for the forseeable future, you shouldn’t worry about small corrections up and down. If you’re going to sell in the next five years or so then you run the risk of being upside down when you have to sell.
Also just make sure your bank doesn’t yank your HELOC when the market turns. If you remotely think you’re putting in an offer on an investment house, draw them money right then instead of waiting until it’s under contract.
The mindset being that IF you are going to be in your primary residence for the forseeable future, you shouldn’t worry about small corrections up and down. If you’re going to sell in the next five years or so then you run the risk of being upside down when you have to sell.
Also just make sure your bank doesn’t yank your HELOC when the market turns. If you remotely think you’re putting in an offer on an investment house, draw them money right then instead of waiting until it’s under contract.
Posted on 8/21/22 at 2:03 pm to deeprig9
I don't know call me crazy, but maybe you should look at a cheaper rental property. If you do this right you could count income from the first property to get a loan for your next property. In the end you can buy something nice and do a 1031 exchange OR you could build your portfolio. Honestly, having one rental would scare the shite out of me. Having 4-5 seems like a minimum threshold to feel comfortable. I think 10 is a good safe number to spread out risks of one individual property becoming a burden on your regular household income. Oh, start your busines entity NOW! A 2 year old LLC even without any actual history is way easier to get a loan through than a fresh one.
Posted on 8/21/22 at 2:19 pm to armsdealer
quote:
A 2 year old LLC even without any actual history is way easier to get a loan through than a fresh one.
This isn’t true. 9.5 out of 10 deals I finance the LLC is a brand new llc that was just created to own the property Being purchased (unless it’s a refinance). Business credit or the newness of an LLC means nothing in a commercial real estate loan.
You underwrite the property first and foremost. It’s property income minus expenses equals ability to repay the debt. Then the secondary source of repayment is the owner of the LLC (guarantor). Personal credit, liquidity etc should the property become vacant (can the gtr support the debt on their own).
Posted on 8/21/22 at 2:32 pm to Im4datigers
quote:
Get a HELOC now while values are super high.
Thought about this.
quote:
Also just make sure your bank doesn’t yank your HELOC when the market turns.
Also knew about this.
I used to sell HELOC's 20+ years ago. I'm far from an expert but have a general idea how they work. I really don't want my primary tied up with my investment if possible.
Posted on 8/21/22 at 2:35 pm to armsdealer
quote:
I don't know call me crazy, but maybe you should look at a cheaper rental property.
Here's the thing- we don't want to be landlords. We don't want to build a real estate empire. We want to snatch a retirement/second home house or condo on the beach somewhere in the next real estate market correction, and earn income (or at least try to break even on the mortgage) on it until we actually retire and move in. And obviously block out vacation weeks for ourselves a couple few times a year in the meantime.
This post was edited on 8/21/22 at 2:40 pm
Posted on 8/21/22 at 2:42 pm to Im4datigers
quote:
You underwrite the property first and foremost.
Remind me the name of that form that is an appraisal of rents on a property? I dealt with them many many years ago. It was like an 801 or a 1080 or something.
Posted on 8/21/22 at 3:21 pm to deeprig9
Why not just save up for a down payment?
Doing any of those other scenarios to come up with a down payment means you absolutely cannot afford a second home.
Doing any of those other scenarios to come up with a down payment means you absolutely cannot afford a second home.
This post was edited on 8/21/22 at 3:23 pm
Posted on 8/21/22 at 3:25 pm to GEAUXT
quote:
Why not just save up for a down payment?
We are. But if the market gets right before we get to that cash goal, looking for options to make up the difference.
There's also something painful about keeping that amount of cash on the sidelines during a hypothetical recession.
Posted on 8/21/22 at 3:28 pm to GEAUXT
quote:
Doing any of those other scenarios to come up with a down payment means you absolutely cannot afford a second home.
I am not looking for a life coach in this thread, but I appreciate your advice.
Posted on 8/21/22 at 3:36 pm to deeprig9
You can put 5 or 10% down on a second home as long as you claim it as such.
Needs to be more than 50miles from Primary
Needs to be more than 50miles from Primary
Posted on 8/21/22 at 3:44 pm to SDVTiger
quote:
You can put 5 or 10% down on a second home as long as you claim it as such.
Needs to be more than 50miles from Primary
This is excellent! I was a mortgage originator 20 years ago and this was not the case, so if I live in Atlanta and buy a condo in Destin or Charleston, and W2 docs and 780+ credit scores, I can do just 5 or 10% down these days?
Educate me. I want to learn.
Posted on 8/21/22 at 3:44 pm to deeprig9
quote:
Cash advances on two existing credit cards, could get another $30k.
Do this. It makes a lot of financial sense.
Posted on 8/21/22 at 3:46 pm to notiger1997
quote:
Do this. It makes a lot of financial sense.
I was just listing it as one of many non-attractive options. There's no need to be a snarky a-hole.
Posted on 8/21/22 at 3:57 pm to deeprig9
First time on the MB?
This post was edited on 8/21/22 at 3:57 pm
Posted on 8/21/22 at 4:37 pm to deeprig9
quote:
and W2 docs and 780+ credit scores, I can do just 5 or 10% down these days?
Educate me. I want to learn.
Yes. Rates are the same as a primary. As long as your DTI covers both mortgages you are fine
You cannot use potential rent to offset the payment like an Investment that could be the potential issue if any
Im certain you can put 5% down
If you can access 30k thats all you would need unless you are going over 500k
This post was edited on 8/21/22 at 4:38 pm
Posted on 8/21/22 at 4:41 pm to SDVTiger
Second home is 10% down and the rates used to be similar to primary, but now they're closer to investment property rates
Posted on 8/21/22 at 4:44 pm to deeprig9
If you have to borrow to get a down payment together, you need to re-evaluate your plan.
Posted on 8/21/22 at 4:46 pm to armsdealer
quote:
Downpayment? by armsdealer
I don't know call me crazy, but maybe you should look at a cheaper rental property.
Not buying something you cant afford is so last economic cycle.
Posted on 8/21/22 at 4:51 pm to Pendulum
Here’s the thing - 9 out of 10 times you need an equity injection of at least 20% to make the rental numbers work. Putting down 5% you’ll almost never be cash flow positive.
Investment real estate properties up here in dc sometimes require 35% down to just breakeven. When they’re selling at a 5 cap, you have to put more money in.
I’ll never understand why someone would want to buy a negative cash flow property? Credit and outside income aside, Eventually you’re going to get tired of paying the difference every month. It’s like a girlfriend that doesn’t put out.
Investment real estate properties up here in dc sometimes require 35% down to just breakeven. When they’re selling at a 5 cap, you have to put more money in.
I’ll never understand why someone would want to buy a negative cash flow property? Credit and outside income aside, Eventually you’re going to get tired of paying the difference every month. It’s like a girlfriend that doesn’t put out.
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