using LOC to purchase rental property - Posted by Pat

Posted by Jay(TN) on July 28, 2003 at 20:20:54:

If you plan to buy more properties, keep the ARM and use the LOC for new purchases. I recently bought a property with cash and part of a LOC. I later found more deals, and now I need the cash sunk into the other property. Keep the cash or LOC in your back pocket. 5.875% is a great rate, historically speaking.

Also, think about your interest rate. If you acquired another investment, can your net return exceed 5.875%? I bet so. Use your LOC to acquire new investments.

Basically, what I’m trying to say is there are better uses for that LOC, and paying off the 30 year ARM probably isn’t one. If you’re winding down for retirement, then your priorities may change.

Good luck,

using LOC to purchase rental property - Posted by Pat

Posted by Pat on July 28, 2003 at 13:49:51:

Hi, folks,

I’m hoping that someone here can advise me on a possible financing strategy that I haven’t seen discussed anywhere.

My husband and I recently purchased a rental property. We have a 30 year ARM with the first 5 years fixed at 5.875% on this property.

We also have an equity line of credit on our primary residence. The interest on the LOC is at prime, currently 4%.

We are considering paying off the balance on the rental property ($140,000) with the LOC, lowering our interest on that property to 4%.

I’ve talked to my tax person and to the IRS and they both assured me that the interest on the LOC would be deductible as a business expense. But I’m a bit concerned that mixing the finances of our primary residence with our rental business is a bad idea–though I can’t put my finger on why. I’m also not sure I want to gamble that the prime rate won’t shoot back up in the next few years–leaving us needing to refinance with higher interest rates.

Does anyone have any thoughts or advice for me on this?