10 minutes to read

Use a Personal Loan for Your Investment Property. Here’s Why:

Yesterday, I wrote about several ways that one can purchase an investment property without using a home mortgage.

The post was written in response to Wells Fargo’s underwriting team that wanted to impose red tape on my investment property purchase. Instead of folding to their demands, I figured I’d try other ways to finance my investment property so I wouldn’t have to extend my closing date any more than I had already done.

I went to my primary bank, USAA, and looked at all of their personal loan options.

When I saw that USAA offered personal loans that could be used to purchase a property, I was super excited.

My adrenaline increased and I was off to complete my application. But, not before comparing with other bank’s loans and conditions.

After checking around, I was sold on USAA’s personal loan product.

They were offering personal loans up to 84 months at only 8.49% for well-qualified applicants. Other banks that I checked offered personal loans but only up to 60 months.

I needed $65,000, quickly, and this was how I was going to get it.

It took me about 10 minutes to complete USAA’s online application.  The best part about requesting a personal loan was I that I wasn’t required to submit any paper work.

For the same $65,000 mortgage request, I was required to provide two month’s worth of income stubs, retirement account statements, two years worth of W-2’s, two years worth of rental agreements from rental properties, two month’s worth of checking and savings accounts, an appraisal, proof of hazard insurance, and so on and so on. This process was one thousand times easier.

After completing the application on USAA.com, unfortunately, I didn’t receive an instant approval because the amount that I requested was higher than what is usually requested, I was told. So, an auto-reply message informed me that a decision would be made within one business day.

However, I needed to have a decision as soon as possible, especially because I had to notify my contractors if I needed them to work this Friday. I didn’t really want to pull them from their current job.

I really had to know about the approval. I was on the edge of my seat. If I didn’t get approved for the personal loan, I would have had to go forward with the mortgage.

Two hours after submitting my loan application, I called USAA to ask for a status update.

Well, actually, I called to see what the maximum amount of loan they would consider me for but before I had a chance to ask I was told that my current loan was already with an underwriter.

This was super quick!

After finding this out, I was asked if I wanted to wait on the phone while the underwriter took a look at my paperwork and of course I said, yes.

I was put on hold for about 15 minutes. The representative continued to check on me every five minutes.

Right when I thought I was about to hear my answer, my cell phone call disconnected from USAA as I drove through a weak spot on Interstate 485.

I was furious, but persistence is a virtue.

I called back to USAA and was put on hold again.

Unfortunately, no record of having called was put in the system so I had to wait another 15 minutes after being re-connected with the underwriting department.

After this waiting period, a representative came on the phone to verify and get clarification as to why I needed the money.

I told her.

“I need the money to help me purchase a property. It wouldn’t be a down payment, but an amount that would help me purchase the property in full without a mortgage.”

That’s all I explained.

I was put on hold again and then five minutes later she came back on the phone to tell me that my personal loan for $65,000 was approved.

I was ecstatic!

I gladly accepted the terms and conditions that has me paying $1,035 monthly for the next seven years, if I decide to keep this loan. But I’m not worried.

Here are the benefits of my personal loan:

  • My first payment is pushed out until July 5th, 2014. Although interest accrues daily until the first payment is due, 60 days gives me plenty of time to re-condition my investment property and then list it in the MLS for a hopeful flip prior to July 5th.

  • The home will be mine the day I close. There is no lien holder.

  • I no longer have to have a 25% down payment, which would have taken money from my wealth number account. The money in my wealth number account is also the money that I need to purchase my primary residence next month.

  • I no longer have to have prepaid escrow amounts, such as a year’s worth of taxes and homeowner’s insurance premiums to close on my property.

  • I don’t require an  appraiser to come to the property to tell me that something else has to be fixed, which would make the bank hold off on my closing…again…until the appraiser goes out to the property to verify the fixes…again.

  • After closing on the property, I can apply for a cash-out refinance to pay off the personal loan balance and substantially reduce my debt payments.

  • Best of all, I can close on my property as intended…on May 13th, 2014.

I’m done with banks for my investment properties. As a friend and I discussed last year, the concept of equifinality states, in layman terms, that there is more than one way to skin a cat.

So, going forward I’m going to use a combination of personal loans and cash to acquire all my investment properties.

You should do the same thing. You shouldn’t definitely use a personal loan for a house or investment property.

Worst case scenario, you can always try for a cash-out refinance of your property AFTER it is acquired, fixed-up, and on the market.

Comments

  1. Your information was very helpful and I may have to try it in the future. Thank you for sharing it Jeremiah.

  2. Thank you for the article. I’ve been wondering about getting a personal loan to buy investment property as well. The one downside I can see is that you can’t deduct mortgage interest to offset rental income at tax time. Do you see this to be much of a disadvantage, or rather a “small price to pay” to avoid all the hassle of a bank mortgage loan?

    • Hi Margie. There are definitely advantages to having a mortgage for rental properties, like the amortization over a longer period with a lower interest rate. I’m not a tax professional, but I think you would still be able to deduct the interest as part of the business. That being said, I specifically used a personal loan to help me quickly acquire the property. That’s the key. My next move, had I kept the property for more than a year, would have been to finance the property into a long-term mortgage.

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