Credit line leverage

10 Replies

I recently inherited a house worth about 100K; I'll have it rented soon.

I'm self employed with good credit but a low net income.

Would HMLs be likely to give me a line of credit on the property up to about 75K for doing small fix and flips?


Assuming it is owned free and clear? I would look into a traditional HELOC. That doesn't sound like something a HML traditionally does. Not to mention HML tend to be rather steep on points/interest. Depending on your level of attachment to the home you could always sell it. But it sounds to me like you want to keep this as your first SFR.

Thanks Ryan. I do own it clear and want to keep it. I was thinking a traditional HELOC would,be difficult because of self employment with a low net income.

Are they not as restrictive as I'm thinking?

HMLs seem more willing to deal, for a price of course.

Perhaps HLMs would just do straight loans with the house as collateral?

How long have you been self employed? Normally a HELOC they want to see equity and debt to income ratio. Do you have 2 years of tax returns to "back up" your self employment?

Hi Ryan

I'll have two years this August.  It's the hoop jumping with regular banks that's got,me thinking short term money with HMLs until I can find true private money.

Do you think HMLs would collateralize my house?

I could also collateralize the house with a private investor for better rates, yes?

Most HML's collateralize the house you're purchasing. They may give you a secured loan against the one you have but it may be more productive to bring them the specifics of a deal on another property and have that property secure the hard money loan. If done right you could rent your existing SFH for enough to cover the holding costs until you meet your exit goal for the new project. Regardless, HML's should typically be utilized for short term projects ~6 months since you're typically structured as interest only so take that into account.

Also, some banks will take 6 contiguous months of rental income as proof of income for a cash-out refi. You could rent your existing free and clear prop for 6 months and then use that income to qualify for a cash out refi at 30 years fixed.

Good luck! You've got lots of options!

Thanks Jon that's good info.  I was thinking about the rent stream to cover holding costs.

What percent of market value might a bank lend on a cash out refi?  Would the rent stream be the prime qualifier?  I don't have a high income on paper, though credit score is ok.

A high enough cash out would make me my own bank for small fix and flip projects.

You should have no problem getting 65% + my bank will do up to 80%

I wish you were in FL Ryan--the house is in NC actually.

Would the house appaise differently for cash out refi as a rental than it would as a,typical,owner occupy?

I would talk to a local small bank in NC. Preferably one in the town your home is located in. I'm not familiar with the actual appraisal process on a Re Fi  vs. Owner Occ. 

I suggest a small local bank as some of them would carry something like that in house. 

Jon above is correct that you would be better of approaching a HML with a separate deal. Most of them will not do what you are looking for. Plus they would rake you through the coals on points, fees, interest payments, etc.

What does the house rent out at? 

Honestly you may be better of selling it and re investing the cash if you can't get a traditional cash out refi done.

I'm projecting a monthly of 850 to 900, though I'll have it with a management firm since I'm out of state.

I've browsed some HMLs and the terms are quite steep--what John suggests sounds best.

And it could be replicated on small rehab and hold properties.

Is the cash out refi not common with banks?

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