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Originally Posted by narwhal
Entry level investors that don't have the initial dough shouldn't be setting themselves up for a "double" housepayment or worse if they lose on, or lose outright, the investment that was purchased. Hence the question.  |
If you plan to purchase vacant land, you typically must do this with cash. You can obtain the cash from your own personal residence. It's normally difficult to get a loan on vacant land.
If you plan to purchase improved property, you can probably get a better interest rate on your own home equity line of credit than you can otherwise get on investment property. However, the equity line carries the risk of rate increases, whereby the mortgage on the investment property can be a 30 year fixed mortgage. This makes more sense and limits the risk over the term of ownership.
Note that the cost to obtain a home equity line is usually $0. but the cost to obtain a traditional mortgage on the investment property will typically run 3-4% of the amount borrowed. It's tempting to use the home equity line.
Of course, there are the risk takers that borrow the down payment from their own home equity line of credit and finance the remaining 80% of the investment property. This maximizes the return on the investment, however, it carries the greatest risk of default, because of the hefty carrying charges on a 100% loan.