Gap Funding/Lines of Credit

Creative Real Estate Financing
2yFollow

Gap Funding/Lines of Credit

Zach Kirchoff
Member since 2024 · 6 posts · 6 votes

New to the community here. Medium sized flipper here out of Minneapolis doing between 40-50 deals per year. Looking for insight into borrowing money to cover down payments and floating capital between renovation draws. Currently have a small executive line of credit at $350k that we outgrew in about 12 months.

Does anyone have any good contacts for secondary lenders? Talking about a person or company who will bring in cash for down payments and floating capital between renovation draws. I am open to private individuals, just have not found the one who can cover this level of scale. 

Have plenty of SFRs to collateralize with second mortgages but do not own any of them free and clear. Most lenders will do lines of credit only on "lendable" equity in SFR's and/or properties owned outright.

Would be looking for between $600-700k on a new loan to pay off our current line and have free cash to continue to scale. 

Any insight would be appreciated!

2Reply
34 views

7 Replies

Jump to latestLatest
  • Katie Smith
    Member since 2023 · 348 posts · 190 votes
    2y

    Hi Zach, have you thought about doing a cash out refinance on your rental properties? You can pull out up to 80% of the value of the home, depending on credit score and property location. Going the hard money route will not affect your DTI or get reported to the credit bureau. Happy to connect and see if i'm able to help you pull cash out of some of your properties!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y

    captial partner is probably what your looking for.

    I would advertise on Pace Morby's facebook lots of beginner investors on that site that might do deals like this .. most experienced investors wont do gap funding based on risk.

    350k unsecured line from a bank is really good those are hard to get.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y

    @Zach Kirchoff I second @Jay Hinrichs in being impressed at your achieving a $350k LOC, that is not an easy feat in that industry segment what so ever.

    I am torn a bit, by that and by the ask, they are so opposite things, one yelling very low risk the other high.... 

    What is your ideal terms of such? Your offer so to say? Remove second mortgages, say it will not securitize via the already leveraged real estate, what do you have to offer in terms for such? And for other securitization consideration? 

    I understand thought about equity in properties but what have to keep in mind is how it views from financing side of the table. Taking an asset to liquidate is a significant hassle, loaded with additional expenses, time oh-so-mush time, and variables such as potential market movements, changes to condition etc. all these come together to very possibly devouring what your equity positions may be in full or more, leaving no real equity of securitization itself. 

    The big question here is what rate and term you're open to. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @James Hamling:

    @Zach Kirchoff I second @Jay Hinrichs in being impressed at your achieving a $350k LOC, that is not an easy feat in that industry segment what so ever.

    I am torn a bit, by that and by the ask, they are so opposite things, one yelling very low risk the other high.... 

    What is your ideal terms of such? Your offer so to say? Remove second mortgages, say it will not securitize via the already leveraged real estate, what do you have to offer in terms for such? And for other securitization consideration? 

    I understand thought about equity in properties but what have to keep in mind is how it views from financing side of the table. Taking an asset to liquidate is a significant hassle, loaded with additional expenses, time oh-so-mush time, and variables such as potential market movements, changes to condition etc. all these come together to very possibly devouring what your equity positions may be in full or more, leaving no real equity of securitization itself. 

    The big question here is what rate and term you're open to. 


    James this just screams equity partner.. do as  many deals that you can do on your own and then for the over flow bring in partner share the wealth if it worth it.. The issue with the unsecured bank loans is they are just super tough to get so again 350k is really something for someone in the flipping bizz.. Its not that the operator does not qualify its just the banks by and large do not have that product.. what a lot of bigger players do is use their securities as collateral and pull loans through that avenue and those can be very good rates.. My high net folks use to get those loans for 2 to 3% .. not sure where they are at now.. but they did not have to sell the securities and it created cash for their investments.. ( or to invest with me on my deals).  Just a thought.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @James Hamling:

    @Zach Kirchoff I second @Jay Hinrichs in being impressed at your achieving a $350k LOC, that is not an easy feat in that industry segment what so ever.

    I am torn a bit, by that and by the ask, they are so opposite things, one yelling very low risk the other high.... 

    What is your ideal terms of such? Your offer so to say? Remove second mortgages, say it will not securitize via the already leveraged real estate, what do you have to offer in terms for such? And for other securitization consideration? 

    I understand thought about equity in properties but what have to keep in mind is how it views from financing side of the table. Taking an asset to liquidate is a significant hassle, loaded with additional expenses, time oh-so-mush time, and variables such as potential market movements, changes to condition etc. all these come together to very possibly devouring what your equity positions may be in full or more, leaving no real equity of securitization itself. 

    The big question here is what rate and term you're open to. 


    James this just screams equity partner.. do as  many deals that you can do on your own and then for the over flow bring in partner share the wealth if it worth it.. The issue with the unsecured bank loans is they are just super tough to get so again 350k is really something for someone in the flipping bizz.. Its not that the operator does not qualify its just the banks by and large do not have that product.. what a lot of bigger players do is use their securities as collateral and pull loans through that avenue and those can be very good rates.. My high net folks use to get those loans for 2 to 3% .. not sure where they are at now.. but they did not have to sell the securities and it created cash for their investments.. ( or to invest with me on my deals).  Just a thought.

    I agree, although in my experience most often when people hear that "P" word they draw back and.... ruminate on "loosing" a % of there company, investment, cash-flow or profits. 

    I personally have a spidy-sense tingling that the underlying issue is more over-leveraging than it is working capital on the float. Mentioning a 2X new LOC to "... pay off our current line and have free cash to continue to scale" is a statement that makes me wince a bit. 

    0Reply
  • Zach Kirchoff
    OP
    Member since 2024 · 6 posts · 6 votes
    2y

    James and Jay, not trying to touch off any spidey senses. Our cash position always sits between 20-25% of total outlaying debt ($3M worth of debt on properties and $600k of floating cash to avoid problems and/or market turns). 

    Re: using the new line to pay off the old. I have found it hard enough to get 1 line of credit, let alone 2 on the same business. 2nd line would need to satisfy the 1st for the lender to give it to me.

    Thanks for the ideas on equity partner - will be the path that looks most promising!

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Zach Kirchoff:

    James and Jay, not trying to touch off any spidey senses. Our cash position always sits between 20-25% of total outlaying debt ($3M worth of debt on properties and $600k of floating cash to avoid problems and/or market turns). 

    Re: using the new line to pay off the old. I have found it hard enough to get 1 line of credit, let alone 2 on the same business. 2nd line would need to satisfy the 1st for the lender to give it to me.

    Thanks for the ideas on equity partner - will be the path that looks most promising!


    I have been equity partners now for about 22 years so I am not just talking in the abstract i help companies scale and or grab deals that are very good but they are out of capital and they are fine sharing profit with me.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free