Using lines of credit for real estate investing

by David

Good day. I was wondering a few things if you could help me out please.

How would I go about getting a line of credit to buy foreclosures? What do banks typically want to see for documentation or collateral?

The reason I am asking is because I would assume that a large line of credit ($150,000 or more) to purchase multiple properties would be particularly difficult to get.

Is it wise to use a line of credit to rent multiple houses or should I just get mortgages? What if I wanted to flip houses? Which method works best in your opinion?

LM says: David, this is probably the number one stumbling block for most beginning investors - finding the money for investing. However, there are numerous ways that you can finance your real estate investing and house flipping.

Like you, most people immediately look to banks for real estate investing loans. Depending on numerous things that could be a good option. If you are looking for rental property that you intend to keep for several years then bank money could work.

Particularly now I have talked to other investors that are getting 30 yr fixed loans for less than 5% interest rates. That was unheard off only one year ago for investment property. That is some seriously cheap money.

So if your goal was to acquire property that you are going to hold for a long time then a bank loan would make sense as long as the property would cash flow accordingly. By cash flow I am referring to the difference between what you charge for rent and what your monthly expenses on the property are. Your monthly expenses include mortgage, interest, taxes, insurance, utilities, yard work, etc.

Now, if what you are looking for is a line of credit, there are a lot of options and many of them would vary according to the bank you use. What I can tell you with certainty is that for a line of credit much like for a loan, the bank will look at your personal financial status, your income, assets, credit score, etc.

If like you say, you are looking for a $150k line or higher, then yes it would be difficult in general but it would depend on what assets you would have to back up your request. For that amount, if you find it, it would probably have to be secure
and for most people that would mean being secured by real estate as in a home equity line of credit (HELOC).

This mean you would have to own one or several properties where you have equity of $200k or more since banks only lend on 80% (at the most) of total equity.

I have also known of other investors getting unsecured business lines of credit offered by small local or regional banks. So no, don't go to Bank of America looking for this but go to your local banks. You would have to be operating your real estate investing as a business and possibly be incorporated. If you do then you would be no different than any other small business that needs and uses lines of credit to fund their operations.

Once you have a line of credit or several of them you can certainly use them to purchase foreclosures. Just understand that when you use these lines the interest might be high and the money is only available for a short period of time. This time might be sufficient for you to buy a property, fix it and resell it. But using lines of credit for long-term properties would probably not work out.

In my opinion the easiest way to flip houses is with cash. Whether it be your own cash that you have parked in a savings account or with a line of credit from a bank since once you have it you can draw on it as much as you want and/or your limit will allow. That way you don't have to go through applications or approvals for withdrawals like you would on a hard money loan or construction loan.

The second best option is to use a private lender - someone (not a bank) that is willing to lend you the money. With a private lender you can get a loan either short term for flipping properties or long term that you can use to buy and rent houses. Because you are not dealing with a bank you can work out all sorts of terms as long as you both reach an agreement.

Review our article on loans for real estate investing so you can see some of what is out there. I just want to urge you to consider more than one way to "skin this cat". Banks are not the only source of money for real estate investing.

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Thank you.
by: Anonymous

That was very informative!

Great Info
by: Anonymous

Thank you, this was very informative. I am a newbie soaking up all information about real estate investing I can.

excellent stuff
by: Anonymous

Thank you for this information. Really appreciate it.


by: Luis

Glad you found it helpful.

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