Money-out refinancing is fairly widespread in actual property investing. An investor will money in on the fairness they’ve on an present property after which use these funds towards a down fee on their subsequent property. Rinse and repeat.
That difficult course of might quickly be pointless due to a brand new fintech firm.
Downpayments, a Miami-based monetary tech startup, has give you a method for buyers to faucet their present property fairness to purchase new properties—no refinancing required. Right here’s the way it works and what buyers have to find out about it.
How the Program Works
Downpayments primarily offers buyers a mortgage, which they’ll use towards their down fee. There are two choices:
- An interest-free mortgage of as much as 10% of your subsequent funding’s buy worth
- A 20% down fee at a “aggressive” rate of interest (at the moment 7%)
In each circumstances, the mortgage have to be paid off inside 4 years of closing.
This system can profit buyers with quite a few objectives. As the corporate explains on its web site:
Relying in your circumstances, this may increasingly imply various things; it’d imply preserving your financial savings or avoiding having to undergo a cash-out refinance with a view to entry the capital, which regularly means breaking a low fixed-interest charge. It may additionally imply you should purchase your subsequent funding property sooner, or with out an fairness companion, so you may management your personal future and have the liberty to develop your property portfolio by yourself phrases.
Downpayments.com
In fact, nothing comes without cost. Whereas utilizing Downpayments gained’t require you to refinance your loans, you have to to place your property up as collateral. You’ll additionally want to make use of Downpayments’ brokerage companies as you store to your subsequent funding.
As your registered in-house brokerage, Downpayments will curate your listings, present on-demand showings, comparable gross sales, and information you to the closing desk.
Downpayments.com
Basically, you gained’t pay Downpayments straight, however it’ll get a fee out of your eventual property buy (simply as any actual property agent would).
Is Downpayments Proper for Your Portfolio?
Proper now, Downpayments is barely obtainable to buyers buying properties in Florida, however the firm says it’s increasing to different states later this yr. (No phrase on what these states will likely be, although.)
Nonetheless, even when this system’s obtainable in your space, consider carefully earlier than continuing. Whereas it’s billed as a substitute for cash-out refinancing, Downpayments doesn’t assist you keep away from financing altogether. In truth, it simply provides one other mortgage to your combine—which means further month-to-month funds to stability and an excellent additional leveraged property.
In case you do use it, be sure you’re on budgeting system and are ready to make your funds—on time, each time. As with every mortgage towards your property, there’s a danger of foreclosures in the event you’re unable to make your funds.
You’ll additionally wish to take into account the brokerage necessities, particularly you probably have an agent you usually use when vetting new investments. Utilizing Downpayments might imply forgoing that agent’s steering or, probably worse, doubling down on commissions in the event you resolve to make use of each companies.
Prepared to reach actual property investing? Create a free BiggerPockets account to find out about funding methods; ask questions and get solutions from our group of +2 million members; join with investor-friendly brokers; and a lot extra.
Word By BiggerPockets: These are opinions written by the creator and don’t essentially signify the opinions of BiggerPockets.
