HML Offered me a $1 MILLION DOLLAR CREDIT LINE.

13 Replies

Thank you ahead of time for reading as I am excited, but at the same time feel I need to have a solid plan and everything organized ahead of time.

As someone who is newer to real estate, but with high goals and expectations for myself, I am always looking for creative financing and ways to make deals work. My original goal when I started was to do 50 flips in 1 year, but recently I realized that with just my capital, (around $150000), that would be hard to do as I can not do real volume. Hoping to find some options I called what is to me essentially a hard money broker who I have worked with on almost all of my deals and asked her if she knows people who finance real estate businesses. A few days later she came back to me wit these options, #1 has been indicated to me will be no problem to get me approved.

#1: 1 million dollar line we can apply for right now,

80% of Purchase Price (no holdback)

10% interest rate

3 points paid upfront to establish the line plus $2000 in legal fees

1MM minimum line

$1000 flat fees per deal

#2: 5 million dollar line, need to have closed 10 flips in the last 2 years, so we would need to get a couple more closed for you.  Need $25,000.00 in liquid assets, just need to show in your bank balance when we apply. Once we meet this criteria, we can apply with them, the the terms are as follows:

Up to 85% loan to cost on transactions (no hold back)

Interest rates from 8.75- 10% depending on the loan to cost

2.75 each time you pull off the line (so don’t have to pay for whole line up front) for loans over 100k

4% each time for loans under 100k

$499.00 admin fee each time you use

Again can turn as many times as you are bale in 12 month period and both can be renewed annually. Both claim to close fast, 5 days or so and can be used for purchases, or also refinancing if you have a property that you are holding on to that’s free and clear and want to take some cash out of. That’s about it, let me know if you have any other questions and if you want to move forward. Thank you!

I was extremely surprised when she told me I should approve for the Million dollars, because I guess I wasn't expecting that much, and I have to admit the % million was slightly intimidating, but I am someone who takes advantage and makes the most out of opportunities no matter how much I have to step up my goals. So if I did qualify for the 5 million I would just put in that much more effort and be that much more creative.

PROBLEM:

1- Because I only have $150000, and two properties which after refinance would give me about $110000 in equity(which I don't think would matter for the project I would use this money for anyways), I would not have enough capital to fully take advantage of either credit line as far as closing the deal with my 20%, nor rehab costs of at least $25000 per property.

Options I have thought of for solutions:

1- Finding the money by bringing in partners who can either cover the rest of the money needed (I'm figuring around $400,000 total, so 250k  more accounting for down payments rehab, and taking into account 6 mo. of monthly payments with the Million dollars maxed out.

2-Some company's can qualify you for what Ive heard up to $150000 of business card which you can cash out at 0% interest for a year(have contacted some a company to see if I qualify for this).

3-Have my mom join as partner to business and refinance her house to take out approx. $180000. (don't really want to do this because she will try to be the professional even though she doesn't do real estate.

Opportunities:

So far I have done flips, renovation of rental properties, and financed a short term note. With this I can branch out, or stick with the familiar.

1-Flipping properties on a larger scale. If I can flip all properties completely within 3-4 months(which is what I've been doing) I should be able to hit at least 30 per year focusing on properties in the 50-$150000 dollar range. ( I realize I will have to find more contractors which I am in the process of doing.

2-Flip some, and branch out into development, which at the moment I don't know much about, and as far as starting out goes, could take time to break ground, getting everything approved and permitted by the city, finding home plans and such. I do beliewve though if done properly can have a higher return than flipping it seems.

3-Flipping apartment/s 20-40 units, maybe bigger if I can get approved for the 5 million. (possibly the easier transition over development at the moment because I have done 2 4 plex's. There was a 36 unit that sold for 1.7 mil recently that I was looking at focusing on raising money for building below average condition, and rents at market from 3 years ago. Atm here in vegas I believe with those things remedied, it could be worth 3.5-4 million easily. (One of those deals I feel bad about not going for).

4-Starting a DM campaign to get better deals with better margins with some of my own capital.

As far as terms for bringing people in I have a lot on my mind, including charging them the fees related to the hard money lender to take risk off of myself, which I am justifying possibly being fair as the credit line that I probably qualify for leads to much more opportunity for all in the long run. 

Would love some input from people familiar with this type of financing, as well as options for finding money, ways to flip this money, strategy's etc. Looks like I can't put @Jay Hinrichs for some reason. I hope he sees it as I feel he would have some great input. Thank you all.

I'll tag @Jay Hinrichs for you as I would also be interested in his response. My suggestion is: if you need a couple hundred grand + to qualify for a million dollar credit line and you now have $150K available, why not use your existing funds to build up your war chest? In doing so, you may discover whether you enjoy flipping and/or have any aptitude for it. If you decide you wish to expand after that, go ahead. Why the hurry?

@Jeff Rabinowitz

I appreciate you tagging him for me. I am on my 6th flip at the moment within a 7 month period from when I started my company. They have all returned between $10k and $35k. Although I have only had successes with flipping, I realize that I still have plenty to learn. 

I am approved for the 1 Million dollar credit line, but with only 150k disposable, I won't be able to use it to its full potential leaving me in a position where I may not benefit much from it.

I am the type of person that hold myself to a high standard, which is above average. If I feel I am falling behind on my goals, I try to find a way to make it happen. Aside from flipping homes, I feel there is another avenue aside form flipping houses that may yield a better return such as forced equity in multifamily. 

Lol, I am definitely in a hurry. I just expect a lot from myself and I know I can accomplish the goals I set. I realize they are above average, but anybody can accomplish average.

Originally posted by @Christopher Dunson :

Thank you ahead of time for reading as I am excited, but at the same time feel I need to have a solid plan and everything organized ahead of time.

As someone who is newer to real estate, but with high goals and expectations for myself, I am always looking for creative financing and ways to make deals work. My original goal when I started was to do 50 flips in 1 year, but recently I realized that with just my capital, (around $150000), that would be hard to do as I can not do real volume. Hoping to find some options I called what is to me essentially a hard money broker who I have worked with on almost all of my deals and asked her if she knows people who finance real estate businesses. A few days later she came back to me wit these options, #1 has been indicated to me will be no problem to get me approved.

#1: 1 million dollar line we can apply for right now,

80% of Purchase Price (no holdback)

10% interest rate

3 points paid upfront to establish the line plus $2000 in legal fees

1MM minimum line

$1000 flat fees per deal

#2: 5 million dollar line, need to have closed 10 flips in the last 2 years, so we would need to get a couple more closed for you.  Need $25,000.00 in liquid assets, just need to show in your bank balance when we apply. Once we meet this criteria, we can apply with them, the the terms are as follows:

Up to 85% loan to cost on transactions (no hold back)

Interest rates from 8.75- 10% depending on the loan to cost

2.75 each time you pull off the line (so don’t have to pay for whole line up front) for loans over 100k

4% each time for loans under 100k

$499.00 admin fee each time you use

Again can turn as many times as you are bale in 12 month period and both can be renewed annually. Both claim to close fast, 5 days or so and can be used for purchases, or also refinancing if you have a property that you are holding on to that’s free and clear and want to take some cash out of. That’s about it, let me know if you have any other questions and if you want to move forward. Thank you!

I was extremely surprised when she told me I should approve for the Million dollars, because I guess I wasn't expecting that much, and I have to admit the % million was slightly intimidating, but I am someone who takes advantage and makes the most out of opportunities no matter how much I have to step up my goals. So if I did qualify for the 5 million I would just put in that much more effort and be that much more creative.

PROBLEM:

1- Because I only have $150000, and two properties which after refinance would give me about $110000 in equity(which I don't think would matter for the project I would use this money for anyways), I would not have enough capital to fully take advantage of either credit line as far as closing the deal with my 20%, nor rehab costs of at least $25000 per property.

Options I have thought of for solutions:

1- Finding the money by bringing in partners who can either cover the rest of the money needed (I'm figuring around $400,000 total, so 250k  more accounting for down payments rehab, and taking into account 6 mo. of monthly payments with the Million dollars maxed out.

2-Some company's can qualify you for what Ive heard up to $150000 of business card which you can cash out at 0% interest for a year(have contacted some a company to see if I qualify for this).

3-Have my mom join as partner to business and refinance her house to take out approx. $180000. (don't really want to do this because she will try to be the professional even though she doesn't do real estate.

Opportunities:

So far I have done flips, renovation of rental properties, and financed a short term note. With this I can branch out, or stick with the familiar.

1-Flipping properties on a larger scale. If I can flip all properties completely within 3-4 months(which is what I've been doing) I should be able to hit at least 30 per year focusing on properties in the 50-$150000 dollar range. ( I realize I will have to find more contractors which I am in the process of doing.

2-Flip some, and branch out into development, which at the moment I don't know much about, and as far as starting out goes, could take time to break ground, getting everything approved and permitted by the city, finding home plans and such. I do beliewve though if done properly can have a higher return than flipping it seems.

3-Flipping apartment/s 20-40 units, maybe bigger if I can get approved for the 5 million. (possibly the easier transition over development at the moment because I have done 2 4 plex's. There was a 36 unit that sold for 1.7 mil recently that I was looking at focusing on raising money for building below average condition, and rents at market from 3 years ago. Atm here in vegas I believe with those things remedied, it could be worth 3.5-4 million easily. (One of those deals I feel bad about not going for).

4-Starting a DM campaign to get better deals with better margins with some of my own capital.

As far as terms for bringing people in I have a lot on my mind, including charging them the fees related to the hard money lender to take risk off of myself, which I am justifying possibly being fair as the credit line that I probably qualify for leads to much more opportunity for all in the long run. 

Would love some input from people familiar with this type of financing, as well as options for finding money, ways to flip this money, strategy's etc. Looks like I can't put @Jay Hinrichs for some reason. I hope he sees it as I feel he would have some great input. Thank you all.

 Anytime a lender is asking you to pay upfront for more than the credit report and or appraisal fee that brings up a major red flag.  

My concern on the million dollars is the 3 points paid up front.  Is that on the whole line at the time of origination?  That's a $30,000 loan fee or roughly 20% of your current capital.  On the back end if it is $1k fee each deal that could work.  But I think you need to build your war chest a little bit more for this to work really well for you.  After the $30k fee, you only have $120k.  At 20% down on each deal you can only borrow about $480k.  To maximize it I think you should have at least $200k.

On one of your other notes.  If you are having any doubts at all about partnering with your Mom (or any other family member) don't do it.  I made this mistake and it was painful.  If she approaches you about it you can consider partnering on a per-deal basis and take it one at a time.  That may be a way to build your capital without destroying your relationship.

Overall, I like your plan and your drive.  You've got a lot of options and I wish you the best of luck.

@Christopher Dunson I agree with what @Shaun Weekes says.  That 30k up front is sketchy.  

Is your current lender only allowing you to do one deal at a time?  

If you wish to expand you might have to just live like a spartan for a year or two and get your monthly personal nut as low as possible so you can build up your war chest so you can do more deals.  

I don't think I would risk my parents house, however maybe she can get a HELOC for 50k or something that way she still has plenty of equity in case you mess up along the way. You can either pay that line or even pay her a % or two above her rate so she makes a little money.

Another option is to get your own business line of credit with a bank.  I have multiple lines of credit with a large bank.  These are smallish lines(under 100k) but they still help if I am in a pinch and they definitely helped earlier on in my career before I started building high end specs.  These require very good credit and track record though.

I would never pay that 30k up front.  

Goodluck...

I will say that although the 30k fee is not ideal. I have used a HML for all of my deals, and although it may lessen return on one property, it allows me to do 2 flips at once, and make a better return over the same time period. So far over the 6 properties I have done totaling about $741,000 dollars in purchases plus them funding 15k, and another 35k in rehab costs on 2 projects, I have spent about $50,000 doing business with them. This 1 million in funding option is a $30k payment to do $1200000 million worth of transactions, or if I flip the money every 4 months, $3.6 million in transactions per year, as opposed to doing $150k worth of transactions, or $750k per year in the same scenario. Although I would love to have my own money for this, and keep all of the profit, in a partner scenario, I will still make much more return on my money over the years period flipping properties in higher volume.

Not everybody can qualify for this type of loan. I think it is special and some people might be happy to be a part of it. One option I see is having my partner(hopefully only 1 or 2 people) pay the 1k transaction fee. Or even split the initial 30k fee. I think there are a lot of ways to mitigate the risk bringing in a partner or 2 while raising the amount of profit that either of us could make on our own. 

I know I have a different perspective than many, but if I have a completely wrong perspective, I am always open to hear it.

@Joshua Fulenwider

Thank you very much I appreciate it.

@Michael P.

I have always used a HML on all of my deals, so I always end up spending pts up front. This larger LOC actually is a bit cheaper in the long run than if I were to finance that amount individually. My credit was over 700 6 mo ago, but I have maxed out about 40k in credit cards since starting my business and have pretty much been out running the payments by constantly turning the money.

@Christopher Dunson

Paying points at closing and paying 30k up front are two entirely different scenarios.  

I have no problem with you paying points at closing, although anymore than 2 points to a HML seems crazy to me. That's just me but I see tons of HML offers pass through my email and there are many HML options out there.

I do have a problem with you paying someone 30k up front for "access" to money.  That is SKETCHY...

You also don't have enough liquid cash to take advantage of the 1 Million Line.  It sounds like you are Very Illiquid.  

I wish you the best of luck and admire your ambition.  I hope in this case it doesn't work against you and you opt into something that doesn't pan out the way you hoped.  

Goodluck...

You seem to think you are special. Maybe you are, what do I know, but 6 flips in 7 months is not as extraordinary as you may think it is, especially if you only have $150K after the 6 flips. I suspect that million dollar equity line will be available to quite a few people who put up $32K for access. Hopefully, the lender will actually fund your deals after you pay the access fees. Best wishes.

@Michael P.  

I appreciate your advice. I definitely can't utilize the full line of credit on my own. And maybe the deals terms are a bit too steep anyways. I'm just looking for avenues of expansion. Some people starting out expand greatly within a 2 year period or so rather it be flipping homes, brrrr, apartments, or whatever other avenue/s of real estate they take. Others expand 1/5th the amount in 10-20 years, because they think there is no other way. I'm looking for the other way is all. If you don't mind me asking, how did you acquire the capital for your new construction? Good luck to you with your company/s as well.

@Wayne Brooks

I believe they are mainly just using my company's record with them of paying them off early and on time monthly payments as the main financials. HML's care most about the deal in general, and the track record of the ppl they're giving the money to. No track record, plan or know how, no money even if your a millionaire. As far as the proof of only 25k goes for the 5 mil, it seems they will leave it up to me if I can make the LOC work or not. One way = other investors who don't have time but are looking for an RO their money. I started this by myself, and currently I am doing this alone, so alone, I can not use that money to its fullest until I can find it or make it myself.

@Jeff Rabinowitz

I don't think it's very professional to put down anybody's work work nor accomplishments. I also have 2 4 plex's. Although I may not be making extraordinary accomplishments, I know it takes many people 10+ years for just 2 rentals, and I believe one of those reasons is because they don't actually try very hard to find a way. I have done what I have done on my own. No mentors. Just reading. I sold my house, quit my job, and went all in. I just recently started posting on here. For the record, I think what I have done in 7 months is nothing, and I am not content with my supposed accomplishments. But I am looking for a way to make my dreams and goals happen instead of pretending they cant.Your a lender what would be your terms on someone who has paid you back your money within 3 months every time you lent it made all payments on loans from you ranging between 90 and 328k?

I read a post on here a while back where 95% of the people including seemingly experienced investors were saying it was impossible to get more than 1 rental property every year or two on an average salary. The other 5% had no idea why they thought that was not possible. This only added to my opinion on how most people can't figure it out, or are unwilling to take the risk where if they put in all their effort they would not fail in the least.

I'm not saying the LOC's from these HML's are the solution. ATM it's not even an option because I can not utilize it to its fullest which ups the risk on my end. And maybe 30k up front is not the best option.

I've heard so far 30k is sketchy and hard to swallow, but I haven't heard anything on how I can make it work. No strategies, no solutions, other options? 

We can all find on this site very quickly 2 ppl in the same circumstances where 1 accomplished much, and another accomplished nothing in a 1 year time period, or a 20 year time period. 

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