Purchase property with home equity?

Hello everyone, this is my first time posting.
I have run my own business in a rented space for many years and the owner of the building has decided to sell, offering it to me before listing it with a RE broker. I have had an appraiser look at the property and the market value he recommended was $250,000. The property includes a house and a 2 BR apt. Rents, including mine total $2630/mo. Taxes are $3600/yr. and ins. about $3000/yr. The tenants pay their own utilities, but the owner is paying the W/S bill which is about $2000/yr.
Checking with a few lenders, I realize that I will need a 20% down pmnt but don’t have that. My home mortgage has recently been paid off and getting the DP from that through a HELOC wouldn’t be a problem, but I wonder if this is a wise stategy or not. Any suggestions?

Personally, I’m not sure that I would risk my home on whether other people pay their commercial rents.

Has the owner mentioned a number he has in mind?


never. ever. risk your homestead on an investment.

this applies to real estate investments, stock tips, whatever.

Thanks for these replies, the owner doesn’t seem to have a problem with the appraisal (although I’m sure they were hoping for more) and have asked me to make an offer.
Incidentally, the other two rentals are not commercial, only mine is. They are residences and have, as long as I’ve been here, always been occupied with the exception of one time about 2 years ago that the apt. was unoccupied for a few months. Then the tenant after that was evicted for non-payment of rent. Now, this may be a reflection of the economic times we’re in and maybe more of that is to be expected, but the area is desirable with new people and businesses moving in.

Hmmm…I would have asked the owner for HIS price before I divulged the numbers for an appraiser that I hired…and kept those numbers in my back pocket as ‘fodder’ for a possible counter-offer.


Well, the first mention of price did come from the owner right from the beginning when he told me he had a RE agent do an assessment. He told the owner he could sell it for $310,000 and to figure a 6% commission (netting them about $290k). I figured the appraisal I got could only pull them back down to a more realistic point of view.

Good deal…I didn’t see that in the explanation.


I disagree with the idea to never ever use your personal residence’s equity for investment purposes…I’m not an advocate of using it for hairbrained investments but right now is such a unique real estate buying opportunity nationwide we may never see the getting this good again in our lifetimes. May as well have that equity work for you other than sitting there locked up in your house doing absolutely nothing for you.

If you’ll have no problems making the payments on your equity loan/refi, and you can purchase this property at a very good price then I’d consider it. I’d rather you use debt as a tool to purchase an asset at below market value than do like most people who use debt to buy liabilities and doodads. However if you’d have to stretch to make that new mortgage payment if things don’t go smooth with this deal then I’d advise against it. The fact that you don’t have any reserves also concerns me…you’ll need them…

How much cashflow are you looking to make per month on this property? Would you still cashflow from the revenue you’ll get from the other tenants (not to include YOUR office rent)?

If you can pick it up at $250k & put 20% down plus closing you’ll be financing about $200k plus whatever other costs. At say 6% for 30yrs this will put your PITI payment around $1660/mo. Not including w&s and your equity loan on your personal residence.

Im with nsu1997, don’t mortgage your house for a trip to vegas or to buy futures on comodities (both about equally as risky),but in this market, to pull some cash out of your house for investment in something that makes money,I see no harm in it in this enviroment if you know what your doing,in fact I’ve done exactly that,and by using a double close loan you can have little of your own cash in a property and still cash flow great


Thanks for the replies!
So far, that’s two in favor of using the HELOC, two against.

NSU1997 said:
May as well have that equity work for you other than sitting there locked up in your house doing absolutely nothing for you.

That was my thinking. It’s great to know my house is now paid for, but it is a bunch of money tied up in something that does nothing beyond being shelter and piece of mind if it’s not used in some way.

The cash flow from an online calculator I’ve run the numbers on would be about $2700. for the first year and about $700.00 more than that ea. additional year. Those calculations were based on a $235,000 purchase price ($250k market value, minus a 6% commission the owner would pay if he ended up listing with a broker and sold it to someone else at $250k) I plugged in expenses of about $2000.00/year for maintenance. That may be low, but the heating systems are new so that’s something that wouldn’t be an expensive surprise anyway.
All figures include my current rent.
The loan on 235k (80% from a lender and 20% from HELOC) if I figure 6% on both comes to $1514/mo.
I thought that even if I broke even for the first couple of years, then I’d be in a better position after that than if I continued to pay rent and was building no equity.

I bought my first duplex borrowing from my parents who borrowed on their HELOC.
As long as you can make the payments, then go for it.
I don’t think pulling a littly equity out is too risky considering the rewards for buying now.

The owner wants to sell and he knows you. He knows you make your payments.

Have you asked him of he will carry the paper? Maybe you can make arrangements to buy directly from him without giving a down payment.

After all, if you buy it, he won’t have to pay commission.

He has offered to carry a small note, but not the whole amount as he needs the money to buy another property.