Investor · San Diego, CA · Member since 2016 · 16 posts · 5 votes
Does anyone know what the requirements are for a 40%-50% LTV commercial line of credit? Do banks even give lines of credit that big? The property would be free and clear and my credit is very weak. Going to work on that. :) Anyone know where I can find a calculator on this? I'm trying to make my investment plan and decide how much I will spend on a building when I do my 1031 exchange.
Okay thank you, I'll keep that in mind. I just want to clarify my post. Essentially I would be looking for a commercial line of credit at 40-50% LTV so I could then fund 100% of a flip deal.
HI Kristen,
I've used a lot of commercial LOC's to fund deals similar to what you're doing.
Typically a commercial or local portfolio lender will be looking for:
- 1.25% DCR or debt coverage ratio or DSCR - debt service coverage ratio
- up to 70-80% LTV max depending on local credit union or small lender (usually 1-10 branches or less is the type of profile of lender who will do this)
- rates around 4.75 - 5.75% varies from lender to lender
- usually charges 1 pt for origination + standard closing/title/recording/etc (for commercial / portfolio note)
The distinction is probably going to be whether you want a residential type product on your property to obtain a LOC on or whether you'll want to use the above commercial/portfolio LOC.
The benefits of a residential LOC is that it can often times be obtained with the best rates (mid 4's to low 5's) on non owner occupied/investment properties and does not have to meet DCR requirements like a commercial loan has to (above). The residential products only looks at you from a residential mortgage point of view and uses debt to income (DTI). This approach has advantages because you're not going to be limited from the properties rental income point of view.
Hope that helps, let me know if you have any additional questions.
Lender · Los Angeles, CA · Member since 2015 · 800 posts · 229 votes
9y
You're credit being weak is a real problem, but, in all honesty what you need is capital. I get it, I get it, I get it ... yes in a perfect world you could get a LOC with your poor credit score and pay as you use the funds. Yet, this is not a perfect world. Just get a private money loan or hard money loan ... pay your interest ... make your investments ... do your thing. It's a cost of doing business until you can get your credit rectified and increase your cash and equity position.
Lender · Los Angeles, CA · Member since 2015 · 800 posts · 229 votes
9y
@Kristen Daniel first and foremost ... equity is king. The more equity you have, and the better the LTV the more lenient and the better chance of getting the money you have. If you're only looking for 40% - 50% LTV then you should be golden regardless of your credit situation.
Essentially it is an "asset based" transaction.
Feel free to PM me here on BP or my contact info is below. Reach out ... we'll talk.
Investor · San Diego, CA · Member since 2016 · 16 posts · 5 votes
9y
Okay thank you, I'll keep that in mind. I just want to clarify my post. Essentially I would be looking for a commercial line of credit at 40-50% LTV so I could then fund 100% of a flip deal.
Okay thank you, I'll keep that in mind. I just want to clarify my post. Essentially I would be looking for a commercial line of credit at 40-50% LTV so I could then fund 100% of a flip deal.
HI Kristen,
I've used a lot of commercial LOC's to fund deals similar to what you're doing.
Typically a commercial or local portfolio lender will be looking for:
- 1.25% DCR or debt coverage ratio or DSCR - debt service coverage ratio
- up to 70-80% LTV max depending on local credit union or small lender (usually 1-10 branches or less is the type of profile of lender who will do this)
- rates around 4.75 - 5.75% varies from lender to lender
- usually charges 1 pt for origination + standard closing/title/recording/etc (for commercial / portfolio note)
The distinction is probably going to be whether you want a residential type product on your property to obtain a LOC on or whether you'll want to use the above commercial/portfolio LOC.
The benefits of a residential LOC is that it can often times be obtained with the best rates (mid 4's to low 5's) on non owner occupied/investment properties and does not have to meet DCR requirements like a commercial loan has to (above). The residential products only looks at you from a residential mortgage point of view and uses debt to income (DTI). This approach has advantages because you're not going to be limited from the properties rental income point of view.
Hope that helps, let me know if you have any additional questions.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
Credit wise it will be a mixed bag since their main concern is collateral, operators ability, and lastly credit.
If LTV was low enough Im sure a local lender may still be interested.
san diego credit union or other smaller credit unions may be of interest. I would look at their residential products then ask to talk to a commercial lender to see if their guidlines jive with what you're trying to do.
Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
9y
Kristen: I'm not sure a LOC is actually what you can get based on the equity in a property. I have an unsecured LOC from a local bank I am using for acquisitions and a flip, but, it is based on 50% of my liquid assets and not an illiquid building.
Do you fund all of your own deals? I've been throwing around the idea of trying to fund my own flip in my expensive market or take out cash in a property I'm selling and put less into my new property so I have cash to fund someone else's flip in a less expensive market and make less of a return. I'm thinking of rolling all of my money into this 1031 exchange I'm doing but then that would leave me with no real money for 2-3 years. Decisions, decisions.
Do you fund all of your own deals? I've been throwing around the idea of trying to fund my own flip in my expensive market or take out cash in a property I'm selling and put less into my new property so I have cash to fund someone else's flip in a less expensive market and make less of a return. I'm thinking of rolling all of my money into this 1031 exchange I'm doing but then that would leave me with no real money for 2-3 years. Decisions, decisions.
The collateral that WF mentions is all commercial or 5+ real estate, did you have this type of collateral to secure the loan against? It sounded like you planned or wanted to use your residential real estate to secure this commercial product?
Flipping and 1031 exchanges dont go together just hope you've got the intention and the documentation to document that you'll be trading/selling one long term asset trading for another long term asset in the event your 1031 is questioned.
Kristen: I'm not sure a LOC is actually what you can get based on the equity in a property. I have an unsecured LOC from a local bank I am using for acquisitions and a flip, but, it is based on 50% of my liquid assets and not an illiquid building.
Loans based on gross income/revenue or net profit are usually business loans or lines of credit but the loan that she is mentioning is a commercial real estate equity loan from wells fargo up to 75% of commercial real estate.