100K Personal Line of Credit good or bad for BRRRing?

Private Lending & Conventional Mortgage Advice

100K Personal Line of Credit good or bad for BRRRing?

Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes

Today I got an offer from my bank that I’m approved for 100K in a personal credit of line.

I don’t have any rentals income as I’m about to buy my first one. Truth is I’m highly motivated to start my investor journey in real estate and want to speed up the number of investments per year by financing creatively. This being said, I’m exploring all possible option and running numbers.

Now, before jumping the gun anyone out there with good/bad experiences on this type of credit lines?

Your insight will be much appreciated!

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Craig Jeppesen

Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes

Originally posted by @Alfonso Aramburo Zepeda:

@Craig Jeppesen

Jeez, it is scary to get into loans! I think I will BRRRR a property in the cheapest possible neighborhood just to learn & get some confidence.

It is not scary, just make sure you understand how everything works. People get in trouble with all kinds of things in life because they don’t take 20 minutes to read and understand what you sign. Good luck.

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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
7y
Generally speaking, a line of credit is a valuable tool to have when flipping or BRRRing. It will be the source of your down payment and closing costs for the hard money or fix n flip loans that you will use to buy and rehab the house. Once you are done, you will either sell (flip) or you will refinance into a long term hold.
When you refinance, you can get up to 75% cash out on a conventional loan, or up to 85% cash out on a portfolio or Non-QM loan. If you have the equity after the rehab, you should be able to get most if not all or more of the cash you put into the property for down and closing cost, back, and can repay the line of credit. Essentially having no money out of pocket after the refinance. Yet you end up with a nice cash flowing property when done. WIN, WIN WIN!!!
No go out there and create your wealth!!!
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Alfonso Aramburo Zepeda I love lines of credit. I have one and use it often. Two of the common areas of concern for LOCs I see out there is the 10 year maturity date and the adjustable rate. Since LOCs have adjustable rates they will often catch people off guard when they adjust. With rates having no where to go from here but UP, it is likely that your rate will increase in the future. So as long as you PAY YOUR LINE BACK....then you are fine. Meaning, buying a property...flipping it, paying back your line and doing it again. Or BRRRR the property and paying back the LOC. Hope you are following me on that. The 10 year maturity date is where the LOC will modify into a different product all together. Meaning after opening the LOC for 10 years it will cease to be a LOC. It will "mature" into a 20 year fixed rate loan that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate. Not every Line of Credit will have this but it's important for you to know ALL the terms of your specific line in order to plan ahead.
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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
7y
as @Andrew Postell has mentioned, the 10 year mark is important to most borrowers. The option at that point is to take out another new line of credit to replace the old line of credit, and wha la, you have a new 10 years to draw on the line again.
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Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
7y
@Andrew Postell @Andrew PostellVery insightful advice, something to keep in mind on the 10 year maturity of the Loan.
In that case I will reach out to the bank and start digging into that as it could help me on my next BRRRR.

@Kevin Romines
Would you say going with a big bank would be better or a local Credit union/bank would be better? I will definitely get that LOC to build wealth!
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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
7y
I would just go to anywhere that will give you the LOC. If its tied to your primary residence, virtually any company can do those. Credit Unions tend to have more favorable terms than some banks, but not always. Mortgage bankers also have them and can have more options than banks and credit unions? Just shop around a bit, but basically they all have about the same terms and rates?
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Craig Jeppesen
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
7y
A credit line is great for short term financing. If you want to flip or brrr then this will be great to use to rehab properties. Make sure you understand the term of the loan. Do you have to renew every year? If not is it a 10 year loan? If a 10 year loan is there a balloon pmt or does it convert to an installment loan? How do interest rate changes and your monthly payment calculated. What index does the rate follow? If a balloon pmt make sure you redo the loan well in advance. You would not want to be in the middle of a project when your access gets turned off and get a bill to pay next week for $80k.
$100k is not a lot if it is your only source of funds unless you are in the Midwest. You might need to save up some funds as well or you will still have to get a partner, investors, or hml to do a deal.
If you are doing brrr, make sure your numbers are right: ARV, rehab and purchase price need to be right or you won't get your money back to pay off the credit line. A lot of people pay too much money for a brrr house and can't refinance. Just because your house is updated does not mean it is worth more than standard houses selling in your market.

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Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
7y
@Craig Jeppesen
Jeez, it is scary to get into loans! I think I will BRRRR a property in the cheapest possible neighborhood just to learn & get some confidence.
0 Reply
Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
7y
@Kevin Romines
I will try all of them and weigh options. I want to get all my ducks in a row before looking for any more deals.
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Craig Jeppesen
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
7y
Originally posted by @Alfonso Aramburo Zepeda:
@Craig Jeppesen
Jeez, it is scary to get into loans! I think I will BRRRR a property in the cheapest possible neighborhood just to learn & get some confidence.

It is not scary, just make sure you understand how everything works. People get in trouble with all kinds of things in life because they don’t take 20 minutes to read and understand what you sign. Good luck.
1 Reply
Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
7y
@Craig Jeppesen
Agree, it seems the more I research, learn, the less I know about all these.
Thank you for the advise
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Puja Devi
Investor · Los Angeles, CA · Member since 2020 · 30 posts · 15 votes
3y
@alfonso

@Alfonso Aramburo Zepeda What bank did you get approved for that line? I'm also looking around for LOCs.
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Frank Greg
Lender · rate.bid · Member since 2022 · 324 posts · 62 votes
3y
@Alfonso Aramburo Zepeda:

Today I got an offer from my bank that I’m approved for 100K in a personal credit of line. I don’t have any rentals income as I’m about to buy my first one...

A line of credit can be useful but what are the repayment terms on the line and does it fit the intended use?

During the rehab period and prior to property's sale (if its a flip) or commencement of any sort of cash flow (if a rental), the bank will usually still expect payment of interest on whatever amount was drawn from the line.

Are there sufficient reserves to deal address this? Midway through a project, lender can freeze, revoke or lower a line if timely payments are not being received when due on drawn funds.
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
LOC is definitely a valuable tool but like the other commenters have said, also very important to understand how it works. One of the best part of more conventional mortgage loans is that the lender typically will be satisfied foreclosing and taking over the single property if things go haywire, so you can more limit your downside
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Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
3y
Quote from @Puja Devi:

@alfonso

@Alfonso Aramburo Zepeda What bank did you get approved for that line? I'm also looking around for LOCs.
I bank with Schools First which is only available for Teachers, and their family. Wellsfargo and other banks offer them as well. I've noticed small banks offer better terms though!

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Carolina Mejia
New to Real Estate · Duluth, GA · Member since 2022 · 64 posts · 15 votes
3y
Quote from @Alfonso Aramburo Zepeda:

Quote from @Puja Devi:

@alfonso

@Alfonso Aramburo Zepeda What bank did you get approved for that line? I'm also looking around for LOCs.
I bank with Schools First which is only available for Teachers, and their family. Wellsfargo and other banks offer them as well. I've noticed small banks offer better terms though!

OP was 4 years ago, what did you end up doing and how is it going so far?!
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Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
3y
I'm not cashflowing, nor losing money with that property as my sister lives in it currently. She is even paying for maintenance and everything. I guess is going well. Already looking to invest in another property as soon as I find a deal in Riverside-Moreno Valley CA. So if you know anyone around here who has invested in this area, I'd appreciate the introduction.
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Cliff BennerBusiness Member
Accountant · Denver, CO · Member since 2020 · 394 posts · 183 votes
3y
@Alfonso Aramburo Zepeda just be cautious and run your numbers well. I used a Personal LOC, which was just Credit Cards, and this shoot my credit score down, which made getting a loan hard and run your numbers because the refinance didn't go well and it made everything harder.
It could be a useful tool, if you use it right.
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Alfonso Aramburo Zepeda
OP
Investor · Riverside, CA · Member since 2019 · 141 posts · 40 votes
3y
Quote from @Cliff Benner:

@Alfonso Aramburo Zepeda just be cautious and run your numbers well. I used a Personal LOC, which was just Credit Cards, and this shoot my credit score down, which made getting a loan hard and run your numbers because the refinance didn't go well and it made everything harder.
It could be a useful tool, if you use it right.

What went wrong in what you did?
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Cliff BennerBusiness Member
Accountant · Denver, CO · Member since 2020 · 394 posts · 183 votes
3y
The LOC just being credit cards caused me to have multiple inquires, and my utilization shot up so my credit score shot down. This caused my refinance options to be very limited.
Beyond that, this was my first deal and i learned a lot of lessons the hard way. Realtor lied to me, waived inspection, PM's definition of good condition was not mine, they did not screen tenants well, tenant sent a complaint to the city(PM told me, "they must know how to play the system and targeted your house"(the moment I knew we were done with them), their rent was paid to city until items of complaint were repair since April, court date was made in December then they appealed and we are still waiting for a discussion for how much rent we will receive from that. Because of what the Realtor told me, i thought the ARV was twice the purchase price and i knew there were a few items to fix but not nearly as much as i found out later so my refinance wasn't enough and i had to put more into it and not pay down those credit cards.
Check out BP Podcast episode #610 to hear more about it, i think i was the second person on that episode.
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