Should Real Estate Investors Borrow the Down Payment?

//, Investing/Should Real Estate Investors Borrow the Down Payment?

Should Real Estate Investors Borrow the Down Payment?

If you’re an aspiring real estate investor, or if you already own property but you are short on cash and you don’t want to miss out on a potentially Should Real Estate Investors Borrow the Down Paymentlucrative future deal, there’s a question that crosses every purchaser’s mind at least once – and that is, should you borrow the down payment?

Roughly a decade ago, when money was easy to come by – and, you were much more assured of being able to quickly turn your deals – this question was a bit simpler to answer. Today, however, it can require some careful consideration before moving forward.

In many instances, a lender will require that you have at least 20% to 25% down in order to purchase a non-owner occupied residential property. For commercial properties, you may need up to 35% as your down payment amount.

Today, unlike years ago, traditional lenders such as banks are much less willing to move forward on transactions where the down payment is borrowed. This is because, without the investor having at least some “skin in the game,” the lender will be much more at risk of the property going into default.

That being said, if you don’t have the down payment funds readily available in cash, it doesn’t mean that you have to pass on the deal. There are some viable ways in which you could still proceed. Some solutions may include the following:

  • “Borrowing the Funds from Yourself” – One option would be to borrow the funds from yourself. In other words, if you have equity in your home – or even in another investment property, you may consider taking out a home equity loan. You could also consider a credit card cash advance. This, however, will typically come with high fees and interest, so be sure that you read all of the fine print, and that you are able to pay this off quickly. Otherwise, it may not be worth your while. In some cases, you may be able to borrow funds from a retirement plan. Check with your employer’s HR department and / or your tax advisor in order to determine whether this would be a good option, as well as what the drawbacks could entail.
  • Locate a Partner – You may also consider going into the purchase with a partner. Oftentimes, partners in investments assume that they must go in 50 /50 – but this doesn’t necessarily have to be the case. If, for instance, your partner puts up the 20% down payment, you could arrange for an 80 / 20 split.

There are numerous options for moving forward with the purchase of real estate. Sometimes, you just need to be creative. Once you’ve obtained your property, you don’t need to spend an inordinate amount of time managing it, either. For more information on how you can still profit from your real estate investments by using an experienced property manager, Contact Us.

2016-10-26T21:12:42+00:00 By |Financing, Investing|

Leave A Comment