Looking for ideas. If you had a $500,000 line of credit to invest in real estate, what would you do? Buy and hold of fix and flip? Multi family or smaller deals in the city of Chicago or suburbs? What submarkets?
Well given you're talking about a line of credit and not cash, I'd say that buy and hold using the line would not be the best use of borrowed capital (debt from the line) and would substantially increase the risk in any investment(s).
Now, using the line temporarily for the acquisition of property that is either a turn-key or value add investment, and then after seasoning or the completion of work/turn around refinancing the property to extract at least the line of credit funds put into the deal to pay down the line may be an acceptable approach. This too will depend on your tolerance for risk.
My rule of thumb is that equity buys equity, debt supports equity, but never supports itself. In other words I will use equity through saved rental revenue, a refinance, or 1031 exchange to buy more property. In a purchase I will take on debt that is combined with equity to find a comfortable ratio between debt and equity. But never would I use debt to buy property that will also take on debt to buy the deal. The exception to this is using debt on debt temporarily to buy a deal I hadn't planned on but have run across and needs a quick closing. Access to a line of credit for this purpose is then sometimes helpful, but it can also be a curse if you're risk adverse.
In my opinion using debt to buy property when either combined with more debt or using 100% debt isn't a preferred method of ownership. Doing so adds so much risk to the initial purchase, and at a higher more important level increases personal overall leverage. Personally, when overall personal leverage exceeds a point of comfort and is to high it makes me nervous, I have a hard time sleeping, and it makes me moody, So I try not to go there. Easy money makes for easy spending. Disciplined investing never allows for easy spending.
I would get with some local portfolio lenders, discuss how much "seasoning" a property needs before they will put a note on it. Try to buy for under market value, put enough into it where you have 20%-25% equity (including your rehab costs) then cash out all of your money to make the equity line whole again. Alas you are in the property for very little down and you should be able to build you portfolio that way. I'd first speak with some local banks though and just talk to them about what you'd like to do. You "end goal" is obviously important as well, do you want short term flip income or long term cash flow and appreciation...
The thing is that with a line of credit you will need to be making PI payments right away. That is not good for fix and flips although this is one way to generate your own capital after a few deals. I would be looking at buying an apartment building or a small multi maybe 6 units which will cash flow nicely and earn you enough to both make your payments on the line of credit and be able to put some money aside as well to build up your own cash reserves. It all depends on what else you have right now besides the line of credit. If you have other cash reserves which you can use to pay for a rehab then I might try fix and flips. Just keep in mind that the PI payments will not wait until you feel comfortable or until you sell a fix and flip they will be on going no matter what. This is why I would suggest you buy a property that is already cash flowing and calculate that the rents will provide for your cost of the line of credit money and then some. I would say then that my strategy for using a line of credit would be to use it to buy and hold existing cash flowing properties.
However if you can afford to make the payments independent of what any property might generate for you then fix and flips might also work out for you. I just see more or a security, safety and comfort buying already cash flowing properties.
There are two more questions to be answered.. do you want to be actively involved or passively involved? And, what's more important, short-term or long-term gains?
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