Should I Use A Line of Credit To Invest?
I have used a line of credit to invest before but I wouldn’t recommend it for most people.
The main advantage of using a line of credit is that it can provide you with additional funds you would not have access to otherwise, that you can use to invest with the potential for high returns. This is especially valuable if you are looking to grow your portfolio quickly, are tight on cash flow between selling properties, refinancing mortgages, or closing on a property quickly.
However, using a line of credit to invest can be a high-risk strategy:
If your investments do not perform as expected, you may not be able to generate enough returns to cover the payments on your line of credit.
Using a line of credit to invest involves borrowing money, which means that you will be paying interest on the borrowed funds which can add up to a significant expense over time.
While using a line of credit to invest can be a good idea for some investors, it is not a suitable strategy for most people. It is typically prudent and much less risky to simply save enough for the down-payment requirements, then to put yourself in a position where you might not be able to close a property or be forced to sell – this is how you lose money in real estate!
Each person’s financial situation, investment goals, risk tolerance, and reasons are different so consult with your investment team before making any investment decisions.
FYI I advised this client not to use their line of credit given their situation but to wait until they were more financially stable.