Is It Right for You?

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Money-out refinancing is fairly frequent in actual property investing. An investor will money in on the fairness they’ve on an current property after which use these funds towards a down cost on their subsequent property. Rinse and repeat.

That sophisticated course of might quickly be pointless due to a brand new fintech firm.

Downpayments, a Miami-based monetary tech startup, has give you a approach for traders to faucet their current property fairness to purchase new properties—no refinancing required. Right here’s the way it works and what traders have to learn about it.

How the Program Works

Downpayments primarily provides traders a mortgage, which they will use towards their down cost. There are two choices:

An interest-free mortgage of as much as 10% of your subsequent funding’s buy worth
A 20% down cost at a “aggressive” rate of interest (at present 7%)

In each instances, the mortgage should be paid off inside 4 years of closing.

This system can profit traders with numerous targets. 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 so as 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’ll be able to management your personal future and have the liberty to develop your property portfolio by yourself phrases.

Downpayments.com

After all, nothing comes without spending a dime. Whereas utilizing Downpayments gained’t require you to refinance your loans, you’ll need 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 instantly, 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 just out there to traders buying properties in Florida, however the firm says it’s increasing to different states later this 12 months. (No phrase on what these states can be, although.) 

Nonetheless, even when this system’s out there in your space, think twice earlier than continuing. Whereas it’s billed as an alternative choice to cash-out refinancing, Downpayments doesn’t assist you to keep away from financing altogether. In truth, it simply provides one other mortgage to your combine—that means further month-to-month funds to stability and a fair additional leveraged property. 

Should you do use it, be sure to’re on an excellent 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 for those who’re unable to make your funds.

You’ll additionally wish to contemplate the brokerage necessities, particularly in case you have an agent you sometimes use when vetting new investments. Utilizing Downpayments might imply forgoing that agent’s steering or, probably worse, doubling down on commissions for those who resolve to make use of each companies.

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Be aware By BiggerPockets: These are opinions written by the writer and don’t essentially characterize the opinions of BiggerPockets.