I am very new to investing so I am learning a lot. So my question I have is would it be possible for me to get a LOC (line of credit) with my local bank and then use it for down payments on my properties I want to invest in?
ex. $200,000 LOC
$20,000 down payment per property
These would be buy and hold
It's possible you could make it work if the next lender didn't inquire where you got this $200k, but most would. They want to know if it's borrowed because they want you to have some skin in the game (10-30% usually).
If you're new, I'd focus my first deal to be a little smaller and not be so leveraged. You can get the LOC secured (but not withdraw) and be real picky about finding a property with meat on the bone. A good example might be a property with rent potential of $800 but smells like cat pee and looks horrible. You buy it for $40k, put $10k and some sweat labor into rehab, rent for $800. After a few months of seasoning, go to a lender and cash out 70% of it's value (maybe it's worth $80k). Now you pay back the higher LOC with the $56k from the secured loan and go to Disney on the remaining $6k ;-)
Then do it again, but go a little bigger.
@Chris Sellers thanks for the advice! Disney sounds like a good plan!
There is no problem using capital from a LOC to purchase property - I’ve done this several times. They are your funds & they are seasoned. A good strategy is to use the LOC to make an all cash purchase, that way you increase your bargaining position, then once the property is yours, get a lower interest 30 fixed loan on it, & repay most of your LOC. You’ll end up leaving the down payment on the LOC, then pay that remaining balance off with your profits. Repeat the process for the next property.
Just be sure that the property will cash flow enough to cover all your normal expenses (debt service on the 30 yr loan, CapEx, repairs, vacancy, taxes & ins, etc) PLUS enough extra to pay off the LOC in a reasonable anoint of time.
Be aware that the interest rate on that LOC is variable (typically adjusting each quarter), so have a plan (back up funds) to pay it off quickly if the rates go up too high too fast for your business model.
Ok, that makes sense. Thanks for the advice @Ryan D.