Line of Credit on Multifamily Property?

Question

I currently own a 4plex with an estimated 150K+ in equity and I would like to access the equity in order to purchase some more properties.

I have never used a line of credit before and naively assumed it would be a straight forward process. However, after calling multiple banks and credit unions I have come to realize that no one seems to offer such a product for investment properties. Unfortunately I do not have enough equity in my primary residence to pull from there.

Does anyone know of any lenders that will allow a line of credit on an investment property? I have read of other people that were able to accomplish this, however those threads are a few years old. I am located in Tallahassee, FL if that helps.

Any assistance or advice is greatly appreciated!

Andrew Freed · Answer

@Kurtis R. - I know Convoy Home Loans offers LOC on investment properties up to 75% LTV. There is also a local lender in Mass that offers it. Just like all the feedback above, I found the lender by calling every local credit union and bank in a 50 mile radius and asking. I eventually found 1-3 banks that over LOC on rental properties  however their LTV is much lower than a HELOC (primary home line of credit) and comes with worse terms.

Kurtis R. · Answer

Thank you all for your replies. Im not giving up, just trying to shorten the runway a bit.

Back to the phones!

Sean McKee · Answer

@Kurtis R.

I had the same issue a few years back. I spent about a year calling 30+ banks and had few denials on the application. I finally found one that would actually do it. Like people have mentioned above, they do exist. I found each bank has their own nuances. Banks are much more risk adverse to investment lines of credit. You are probably better off searching credit unions and smaller banks.

I would keep researching and cold calling if you really want one.

Daniel Johnson · Answer

Agree with Mitchell here. There are definitely lenders that will do a LOC on a 4-plex, but it does depend greatly on how much equity is actually there.

Another strategy that you might consider is cross collateralizing the property to fund an acquisition. This strategy comes with a little bit more risk, since technically if you end up defaulting on one property, it would also put the other property in default as well. However, I know there are many investors that use this strategy to grow their portfolio with less cash out of pocket.

J. Mitchell Bernier · Answer

Hey Kurtis,

They are plenty of lenders that will do this including the bank I work for, but there could be some underlying problems.

Problem 1) Even if we the Equity of $150K what is the LTV position? 150k equity does sound like a good cushion but if the property is worth $600K, that means you are at a 75% LTV already, which for a revolving line of credit is pretty tight. If you your property is worth, say $400K and you have that much equity, then you may have something.

Problem 2) Banks are good with this but are less open to it when they are in the second position. So, I assuming you have a mortgage on the property already with another company. This means they are in the driver seat in regard to collateral and means even more risk in regard to a revolving line of credit. For example, the bank I work for HATES 2nd lien positions. Now I have plenty of customers that have loans with us and then have a line of credit secured by that same property up to the 75% LTV.

So, my advice, call the company that has the first and see if they are open to a line of credit. If not, you may be running into some issues when it comes to traditional capital sources. Banks and Credit Unions are all becoming a little tighter these days.