Need $100k line of credit

[hakrjak]

I need a $100k unsecured line of credit to use for buying flip houses, because banks are not wanting to lend to me anymore for various ridiculous reasons (i.e. "You have too much exposure to residential Real Estate"). Is anybody lending right now? Does anyone have any suggestions of where to look? I've already gone through my local bank, and they don't do anything that big.

Cheers,

- Hakrjak

 

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[hakrjak]

Problem solved (I think)

I have 3 credit cards here with available credit of $30k, $30k, and $45k... I'm just going to use those to finance my next flip. They have 3% fees for borrowing the money, but that will actually be the same or cheaper than most mortgage companies are offering on closing costs right now --- and no BS approval process! Wh00t!

Cheers,

- Hakrjak

 

[MonTexan]

Hak –

I have had good success in using “money partners†for this very thing. Finding that many friends and family were interested in my real estate endeavors, I started sharing with them what I was doing and let them know early on that I might take on investors at some point in the future.

After “bootstrapping†all of my investments with conventional financing and 20% down for two years (to get past the magical two-years-in-business which all my banks required) I started seeking these people out as investors. Why did I wait two years? Basically so I wasn’t in a position of “needing†the money. I wanted to first build credibility and present this as a win-win for both sides.

At the two year point, I established a couple credit lines with my banks, and then approached my potential money partners to see if they were still interested. By offering them a much higher return than they’re currently receiving on their cash and allowing me to do more deals, it really is win-win.

I draw up a promissory note for each money partner deal and pay 10% interest plus a 1.5% upfront fee. The 1.5% kicker is added in so they encourage me to “churn†the money…..the quicker I can turn a deal around, the more times I churn their funds, the higher rate of return they receive, and the more deals I can do. I’m on my seventh money partner deal right now and have had great results and happy investors.

I’m thinking about dropping my kicker down to 1% and interest down to 8-9% for subsequent investors while keeping my initial investors at the same rates – it should pay better to be in early right?!

 

[Sparlin]

I don't know where to get the funds, but do you have a portfolio or something that you have ready to present to potential investors? It would be something that shows how you've been successful in the past and why they should invest in a new project? I'm not questioning your ability (you've got a great rep. here). That was just the first thing that came to mind when I read your post.

If you did have something to present, perhaps it would be easier round up 5 to 10 investors that would go in at a lower risk? However, you probably wouldn't want to split it up between that many investors. Apart from that, have you looked into government grants? Perhaps they have allocated money to redevelop the area or type of project you are interested in.

Just curious, amateur questions here. :huh2:

Good Luck with your venture. :cheers:

 

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[hakrjak]

Thanks for the ideas guys...

Sparlin -- My main thing is that I don't want to give away too much of my profit. Seems like most mortgage brokers right now are trying to get $5k in closing costs from me for this puny loan when I was paying $1200-1500 for the same loan just a couple years ago. I figured that I'd look into a big credit line I could use for this type of stuff. Problem there is that they usually want a 3-4% fee up front for borrowing money on those credit lines, so the savings is not that much -- but it is very convenient to not have to go through the complex qualifying process each time, where I drag out my tax returns and prove my worth for the past 3 years

I'm thinking that going wiht plastic on this next deal is going to be a fun experiment. Will let you guys know how it turns out,

Cheers,

- Hakrjak

 

[andviv]

if you are gonna go the CC route, I suggest you cash them all at once. If not, you run the risk of them reducing your limit to minimize their exposure. It actually happened to me. I cashed out one and then another one reduced my line as I was now a higher risk for them.

 

[Runum]

Hak I am hearing reports of consumers with high outstanding balances having their credit limits lowered below their current outstanding balance. This would result in astronomical interest rates and over limit fees. Seems to be some games that are being played. Good luck.

 

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[Russ H]

Hak-

Runum beat me to it.

You put 30K on the card and they lower your limit to 5K, you're gonna be in a world of hurt.

-Russ H.

 

[hakrjak]

We'll have to see about that -- I've had several banks cut my limits, but only on cards I wasn't using -- or after I had paid off cards. I haven't had anything cut, nor heard anything 1st hand from friends/family where someone had their limits reduced while they had a large balance on the card.

If worst comes to worst and I need to refi the house to pay everything off fast, how long after the purchase could I do that -- anybody know? I think it might be 90 days?

Cheers,

- Hakrjak

 

[Russ H]

All depends on how you look to the lenders-- loans are not going quickly these days, and if your credit rating is hit hard by high unsecured debt (like CC balances), it may kill your FICO score.

-Russ H.

 

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[Bilgefisher]

Are the banks not willing to give you a loc? I know you use advanta, I hear they are cutting limits and raising interest rates to the max on a whim right now. Just fyi.

 

[hatterasguy]

Using CC's for this is a bad idea. $100k isn't that much go find a money partner.

I know people who use HELOC's for this as well, they are dirt cheap.

 

[tbsells]

Hak,
As the others have said be careful with this strategy. I have bought two houses on credit cards in recent months. I put about $45k each on two different $50k cards that had been paid off. As a result my credit score dropped dramatically, as a result of that my limits were reduced dramatically, which caused a further drop in credit score because I am now over limit on two cards. Within a month two different banks froze my HELOC's on two different houses. Until these two houses sell I'm pretty screwed. I'm pretty screwed for probably 6 months after the two houses sell. I'll have to pay off both credit cards then begin to reuse them for small amounts to rebuild the credit score. Keep in mind that I have not been late on any payments. I simply overused my available credit. I was not charged over the limit fees, but the promo rates are gone and I'm now paying about 15%. I also cannot access my credit lines that have been in place 10+ years. Its a high price to pay for using credit that I was approved for. Its a vicious cycle. The only way out for me is to sell the houses and stop the bleeding.

I have done this for years with no ill effects. I know its risky, but I have never had a problem until now. My banker told me that my credit score had dropped about 100 points recently and I have not been late on anything. BTW, he still did the refi because they lnow me. If not, I'd really be in trouble.

I would be very careful. If you put big balances on those cards you run a high risk of "overusing" your credit. The rules have changed dramatically.

 

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[kidgas]

Hak,
I agree be careful. Do you have an LLC for the flips? You might be able to get some credit if you have a separate entity which may keep your personal credit intact. Just a thought.

 

[webnetking]

Hi Hakrjak,

Sometimes waiting to do things is better than just do it. There is reason out of the thing.

Just to give a suggestion. Find ways to get the bank to approve your loan. Maybe you need to credit repair or something. Sometimes bank have quota that already max out. Or due to the current economic situations they have to raise the borrower parameters for the filtering proses.

Or you can get other investor to come in share the cake. :smx2:

Regards.

I need a $100k unsecured line of credit to use for buying flip houses, because banks are not wanting to lend to me anymore for various ridiculous reasons (i.e. "You have too much exposure to residential Real Estate"). Is anybody lending right now? Does anyone have any suggestions of where to look? I've already gone through my local bank, and they don't do anything that big.

Cheers,

- Hakrjak

 

[hakrjak]

Hak,
As the others have said be careful with this strategy. I have bought two houses on credit cards in recent months. I put about $45k each on two different $50k cards that had been paid off. As a result my credit score dropped dramatically, as a result of that my limits were reduced dramatically, which caused a further drop in credit score because I am now over limit on two cards. Within a month two different banks froze my HELOC's on two different houses. Until these two houses sell I'm pretty screwed. I'm pretty screwed for probably 6 months after the two houses sell. I'll have to pay off both credit cards then begin to reuse them for small amounts to rebuild the credit score. Keep in mind that I have not been late on any payments. I simply overused my available credit. I was not charged over the limit fees, but the promo rates are gone and I'm now paying about 15%. I also cannot access my credit lines that have been in place 10+ years. Its a high price to pay for using credit that I was approved for. Its a vicious cycle. The only way out for me is to sell the houses and stop the bleeding.

I have done this for years with no ill effects. I know its risky, but I have never had a problem until now. My banker told me that my credit score had dropped about 100 points recently and I have not been late on anything. BTW, he still did the refi because they lnow me. If not, I'd really be in trouble.

I would be very careful. If you put big balances on those cards you run a high risk of "overusing" your credit. The rules have changed dramatically.

Thanks for this post. Very good useful info here..... Rep+++++++++

I'm wondering if I use cards that are under my LLC & S-Corp for the bulk of this if it will be better for me, since those debts won't appear on my personal credit report. I'm thinking that may be the way to go! Now is the time for creative finance.... The good news is -- if you can get a flip financed, you won't have much competition out there, because hardly any investors can get loans right now Atleast in my area, 99% of houses for sale in the MLS are not "move-in-ready" gorgeous custom homes like I provide for my customers.

Cheers,

- Hakrjak

 

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[andviv]

for how long are you planning to keep the property? (I remember and ol' thread about a 3-year flip that included rehab, rent and then sell).

If it is a quick buy-rehab-sell, how long do you think it will take? This info should help to find the best way to finance it.

 

[hakrjak]

I'd say a total of 3-4 months. This one will be a quick turn around. I'm not doing buy, fix & holds right now, because of the Fanny/Freddy rules on only being able to have 4 houses at a time. I'm maxed out, so I'm flipping them quick now.

Cheers,

- Hakrjak

 

[andviv]

have you checked with the loca REI group to see who is doing private lending? That may work, although I have no clue of the common terms these days for hard-money lending.

 

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[hakrjak]

have you checked with the loca REI group to see who is doing private lending? That may work, although I have no clue of the common terms these days for hard-money lending.

Yeh I have... they want 5 points up front + fixed costs of about another $1500.... Which is more than I want to pay for closing costs. Maybe hae to though if I don't find anything better, or if I decide not to use my credit lines...

Cheers,

-C

 

[Edge]

Hak -

There are a lot of people that don't want their IRA or 401ks in the stock market right now. What you should do is find your friends/neighbors that have plans that they want to self direct, educate them on how to set up the self directed accounts, and let them invest in your business. Don't do this with a spouse or parent, check out the rules of who qualifies, you'd be surprised at all the options you have.

If they have an IRA or Roth IRA, they can simply transfer it to a custodian, someone like Equity Trust. You then find the deal, give their IRA a promissory note (7% - 10% is going rate) and deed of trust.

If they have a 401k and are no longer employed, they can roll it over to a self directed account. If they have a 401k and they are still employed, they need to contact the plan sponsor and find out how much they have available for an in-service withdrawal. They can have their plan administrator fill the check out directly to the self directed IRA, to save paper trail of rollover, and fund the new self directed IRA. Again get them set up with a promissory note and deed of trust, and you are off to the races.

You'd be really surprised at how simple the process is. In fact Equity Trust (or whoever their chosen custodian is) actually handles most of the paperwork.

Maybe you have IRA or 401k funds yourself that you'd like to self direct, you can do that also, just don't partner your IRA with yourself. Did you know that you can get non-recourse loans to a self directed IRA for around 7%?

 

[hakrjak]

Hak -

There are a lot of people that don't want their IRA or 401ks in the stock market right now. What you should do is find your friends/neighbors that have plans that they want to self direct, educate them on how to set up the self directed accounts, and let them invest in your business. Don't do this with a spouse or parent, check out the rules of who qualifies, you'd be surprised at all the options you have.

If they have an IRA or Roth IRA, they can simply transfer it to a custodian, someone like Equity Trust. You then find the deal, give their IRA a promissory note (7% - 10% is going rate) and deed of trust.

If they have a 401k and are no longer employed, they can roll it over to a self directed account. If they have a 401k and they are still employed, they need to contact the plan sponsor and find out how much they have available for an in-service withdrawal. They can have their plan administrator fill the check out directly to the self directed IRA, to save paper trail of rollover, and fund the new self directed IRA. Again get them set up with a promissory note and deed of trust, and you are off to the races.

You'd be really surprised at how simple the process is. In fact Equity Trust (or whoever their chosen custodian is) actually handles most of the paperwork.

Maybe you have IRA or 401k funds yourself that you'd like to self direct, you can do that also, just don't partner your IRA with yourself. Did you know that you can get non-recourse loans to a self directed IRA for around 7%?

Hmmm, good points. I'd like to explore this further for future deals. Right now since I'd like to close in 2 weeks or so, it seems to be a plan that wouldn't get me the cash quite quick enough -- but thanks for the tips.

I think I'm going to move forward using a combination if a 401k loan, a personal line of credit, and cash from my checking account.

Cheers

- Hakrjak

 

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[Russ H]

Hak, Edge has a great suggestion-- you can do it NOW. You've got TONS of time to do this

Just tie up the props w/a 30 day close, get your inspections lined up, and find the investors.

If they're REOs, they won't close fast anyways.

That way you won't kill your personal reserves or credit score.

-Russ H.

PS If you're trying to do your own self-directed IRA, you've got a lot of hoops to jump through to make sure you don't do it the wrong way (wrong way = LOTS of fines/penalties).

 

[Runum]

There are many investors already doing this. It's a proven method. You can find them in the paper advertising a fixed return, secured by real estate. Good luck Hak. ++++speed edge

PS: sorry Edge, gotta spread the speed first

 

[Bilgefisher]

I'd say a total of 3-4 months. This one will be a quick turn around. I'm not doing buy, fix & holds right now, because of the Fanny/Freddy rules on only being able to have 4 houses at a time. I'm maxed out, so I'm flipping them quick now.

Cheers,

- Hakrjak

You keep saying 4 houses. They allow 10 houses again. The ruling changed again about 4 weeks ago. Albeit they do require more cash reserves now, but that is not entirely a bad thing.

 

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[hatterasguy]

IMHO I wouldn't assume you can sell anything in 3-4 months. In this market I wouldn't buy anything I couldn't afford to hold onto for a long time, if necessary. 6 months...1 year...

You might as well go to the mafia before using CC's. Your going to end up paying some ridiculous rate either way.

Surely if you can't do a HELOC some hard money guy will lend you $100k at 10%-12% interest?

 

[tbsells]

I'm wondering if I use cards that are under my LLC & S-Corp for the bulk of this if it will be better for me, since those debts won't appear on my personal credit report.

- Hakrjak

I think this is a good strategy. As you said, it won't hit your personal credit report.