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Message
re: Borrowing for Second Home/Vacation Property Downpayment?
Posted on 8/21/22 at 4:51 pm to OTIS2
Posted on 8/21/22 at 4:51 pm to OTIS2
quote:
If you have to borrow to get a down payment together, you need to re-evaluate your plan.
Borrowing against my own assets (401k loan or HELOC) is satanic?
People that say having $100k in cash on the sidelines is moronic, but not having $100k on the sidelines is also moronic?
I'm all mixed up now.
1
Posted on 8/21/22 at 4:54 pm to SDVTiger
quote:
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
What's the DTI guideline these days?
Posted on 8/21/22 at 4:56 pm to deeprig9
quote:
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.
They can all be different, but all the ones I have seen say you can borrow up to 50% of your vested balance. If you’re estimating $300K, you’d be able to borrow $100k. You’ll have a factor over prime for the interest, and you’re essentially paying yourself the interest.
Biggest risks off the top of my head are if you leave the company you either have to make a lump sum payment, or it’s viewed as a withdrawal. Also, you’d be taking the money out when the market is down, which means you’ll lose anything whenever the market rebounds.
And since you are simply in the planning phase, shoot an email to to the company that manages (or your HR) asking the exact answer. They should be able to give you the specifics pretty quick
Posted on 8/21/22 at 5:01 pm to Im4datigers
quote:
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.
He put the one reason it would make sense in the OP, looking to lockdown a retirement home now. The rental income would simply be to help make mortgage payments and help cover other expenses, but in the end it’ll really be a “forever home”. Not ideal, but could make sense to help lower the costs over a retirement home
Posted on 8/21/22 at 5:04 pm to Weekend Warrior79
I get it. I’m almost 50 and subscribe to two or three realtor emails for daily updates……..but the thought of me having to carry a note for a property that sits vacant just doesn’t make sense. I mean I’m putting in the max $25k a year to 401k so I guess as a worse case I could cease that and use it to float the mortgage. Just doesn’t make much sense though. Or maybe it does. Idk
Posted on 8/21/22 at 5:16 pm to Weekend Warrior79
quote:
And since you are simply in the planning phase, shoot an email to to the company that manages (or your HR) asking the exact answer. They should be able to give you the specifics pretty quick
Well that's even more complex. There's an older one rolled over into USAA that went to Schwab. Then a newer one still at Fidelity. Then my current one at Voya (puke). So it wouldn't be a loan on one single 401k, it would be multiple loans on multiple stranded 401k's sitting out there. This could be a totally separate topic about whether or not, or how to consolidate them.
Posted on 8/21/22 at 5:27 pm to deeprig9
The mortgage company wants to see where the cash comes from and using credit card advances is a huge no-no.
Posted on 8/21/22 at 5:38 pm to VABuckeye
I thought you were a data center and cabling expert?
Posted on 8/21/22 at 6:51 pm to deeprig9
quote:
I thought you were a data center and cabling expert?
You came here looking for advice on your situation and then you belittle people who give an honest opinion.
The fact that a 30k cash advance on credit cards to buy a vacation property is even an option for you to sheer stupidity. And to a lesser degree so is a 401k loan.
Posted on 8/21/22 at 6:55 pm to HarveyBanger
quote:
You came here looking for advice on your situation and then you belittle people who give an honest opinion.
No, I and VAbuckeye have had a years long back and forth about that because I am in the same business he is in, we have exchanged emails, in fact. It was gentle ribbing. I wasn't belittling him, although I can see how you might see it that way. Please retract your fangs.
This post was edited on 8/21/22 at 6:56 pm
Posted on 8/21/22 at 7:00 pm to HarveyBanger
But for a couple of serious honest informative replies, I might as well have posted this on OT-Lounge.
I thought the money board was better than this. I know it used to be.
I thought the money board was better than this. I know it used to be.
Posted on 8/21/22 at 8:15 pm to deeprig9
quote:what does having cash on the sidelines have to do with your potential acquisition scenario? You don’t have cash on the sidelines for this acquisition so it’s not even relevant. You are making a lifestyle choice potentially using debt to fund a downpayment for financing of a property that will not cash flow. All around negative “investment” but as long as you know that and just want the house to live in and can afford it who cares.
People that say having $100k in cash on the sidelines is moronic, but not having $100k on the sidelines is also moronic? I'm all mixed up now.
Posted on 8/21/22 at 8:36 pm to Nephropidae
quote:
what does having cash on the sidelines have to do with your potential acquisition scenario?
I think it's pretty obvious, needing $100k down on a second home /investment property of 500k.
quote:
You don’t have cash on the sidelines for this acquisition so it’s not even relevant.
It's quite relevant, as the question is how to hypothetically raise funds for a $100k down payment on property.
quote:
You are making a lifestyle choice potentially using debt to fund a downpayment for financing of a property that will not cash flow.
Who says it won't cash flow? Even if the cashflow is only 60% of the mortgage/property management, that's still subsidizing the cost of ownership.
Posted on 8/21/22 at 8:59 pm to deeprig9
quote:
Who says it won't cash flow? Even if the cashflow is only 60% of the mortgage/property management, that's still subsidizing the cost of ownership.
I’m a 25 year commercial lender and people use this all the time on properties that don’t cash flow. I’ve seen the movie before and know the ending. You are going to get so sick of stroking checks each month to subsidize this (unless you are truly loaded and/or using the property like every few weekends). It’s like having an old clunker car that you keep tossing money at. Or as I mentioned before like having a girlfriend you buy all kinds of shite for that never puts out. At some point you’re going to get really, really tired of writing those checks.
Posted on 8/21/22 at 9:05 pm to deeprig9
I get that you need to raise $100k for downpayment and it’s obvious you have the equity to do so. When I hear “cash on the sidelines” I think of hard cash dry powder which is not the case here. You will need to encumber an asset or take on CC debt.
quote:of course. By cash flowing I meant something generating positive income.
Who says it won't cash flow? Even if the cashflow is only 60% of the mortgage/property management, that's still subsidizing the cost of ownership.
Posted on 8/21/22 at 9:49 pm to deeprig9
quote:
It's quite relevant, as the question is how to hypothetically raise funds for a $100k down payment on property.
Truth hurt bruh.
First, if all you have is 401k investments you are far from being in a place to buy a second home. Again, truth hurts sometimes I’m sorry.
You keep mentioning ‘money on the sidelines’, this isn’t true. You can have money invested outside of true retirement accounts that can be liquid in 2-3 days for this type of thing. That’s how most do it.
As said, trying to do what you are discussing is a terrible idea.
Better off looking in cheaper markets and buying something that’s 500% of your current downpayment.
Posted on 8/21/22 at 10:15 pm to deeprig9
Folks are telling you your plan isn’t sound. If you haven’t access to $100,000 for your proposed DP, you’re either not making enough or spending too much for this investment. Either way, it doesn’t work to borrow your down payment.
Posted on 8/21/22 at 10:46 pm to OTIS2
So what I am reading is that if I don't have $100,000 in cash under my mattress, I should just shut up and be a serf. Buying a vacation/rental property just isn't for me.
Posted on 8/21/22 at 10:53 pm to deeprig9
quote:most everyone is suggesting you should have $100k outside of your 401k and 1st home so you don’t have to tie those up/ use debt for a downpayment. The thing is obviously negative cash flow and you don’t seem to have a lot of liquidity.
So what I am reading is that if I don't have $100,000 in cash under my mattress
Posted on 8/21/22 at 11:04 pm to deeprig9
I think 49% back end if you have reserves
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