Lines of credit for buy and hold deals

10 Replies

I have been chatting with a fellow investor about the possibilities of doing joint venture buy and holds. He proposed the idea of using LOCs to fund buy and hold deals and rehabs. 

I think that it is great idea. You have the power of a cash buyer as a new investor. So I met with a company he recommended to help me obtain lines of credit.

They said they they could use their strong relationships with the banks to get me the funds I need through a variety of LOCs and credit cards. (When I first went in, I was under the impression that it was one LOC. )

Not a bad gig for someone who doesn't have good credit, they also offer credit repair. However, I am 22 years old and have worked very hard to establish great credit. 

Here is my dilemma: simultaneous to me trying to jumpstart my real estate investing career, I have also been trying to purchase a single-family home as a primary residence for my family. If I were to move forward with this company, it would create several inquiries on my credit that could damage my score and effect the possibilities of me closing on my primary residence. Not only that, but since I'm using traditional financing through my VA loan for my primary residence, the lines of credit would ruin my DTI ratio and disqualify me on my pre approved amount .

The investor I'm looking to do business with recommended I wait on purchasing my primary residence, and go for the lines of credit first so I can start a few deals.

I'm looking to do whatever I can to start doing deals as soon as possible, but I can't afford to jeopardize my family's primary residence. Our current living situation isn't working very well for us, so I'm trying to purchase our primary residence as soon as possible. On the other hand if I were to wait , I'm not exactly interested in paying other peoples mortgages in the meantime.

I'm definitely open to new ideas and creative financing, but I do not want to screw things up for my family's living situation.

Back to the company, for their services of obtaining multiple lines of credit they charge a 10% success fee. Meanings they apply for the lines of credit and credit cards for me, and I pay 10% of whatever amount they can get for me. For example, if they were able to obtain $100,000 worth of credit lines, I would have to pay them $10,000 on the back end, whether I used the credit or not.

I'm curious to know if there are any other investors out there who have went through a similar process to get started?

At this point, after hearing what the company had to say, I began thinking to myself why can't I just go out and do it myself? I know it's all about relationships and knowledge of the bank, but how important is the relationship?

Is there any reason I can't just do my homework to figure out what banks are looking for when applying for a line of credit and do it myself? I'd like to think I'm a pretty diligent guy .

When I asked the investor I am looking to do joint ventures with, he said I wouldn't be able to obtain that level of credit from banks on my own.

On the other hand, in BiggerPockets podcast 137 Sam Craven was mentioning it's all about how you present yourself to the bank. If your professional, have a project plan, a business plan and make the banks feel comfortable with what you are doing  then you shouldn't have a problem.

I hope somebody here can give me insight on my situation. I want to make informed, well analyzed decision.

Like I mentioned before, I am open to trying new things and not opposed to creative financing ideas, I just want third party input as a sanity check. Both the investor and the company seems very transparent about their intentions and seem like good people. But I will feel more comfortable with a 3rd party input.

I'm trying to figure out if this the risk is worth the return. My biggest interest in real estate investing is wholesaling, & I feel like putting my money and efforts into wholesaling could set me up better for buying hold deals down the line.

Keywords: financing, loc, banks, buy and hold, Chicago, Lombard, Illinois, Credit.

@Trevon Peracca I would not delay your primary residence with rates changing and prices increasing and find a lender that will just run your credit ones for the investment side. The VA loan you will get will only get more difficult the more in depth you investments start getting.

The goal would use short term funds to buy and rehab cash but refi out for some longer term financing at a lower rate which there are options out there even for a young guy. 

Mark Ainley, Real Estate Agent in IL (#471.003954)
630-587-7400
Originally posted by @Mark Ainley :

@Trevon PeraccaI would not delay your primary residence with rates changing and prices increasing and find a lender that will just run your credit ones for the investment side. The VA loan you will get will only get more difficult the more in depth you investments start getting.

The goal would use short term funds to buy and rehab cash but refi out for some longer term financing at a lower rate which there are options out there even for a young guy. 

 What are some of those options? 

Originally posted by @Mark Ainley :

@Trevon PeraccaThere is a couple of lenders and I will send you a PM. 

 Thanks, i look forward to you message.

@Trevon Peracca

Do your primary residence first. That way you have the best DTI when applying for your first conventional primary mortgage. That way, when you do investment properties, the lender will see that your monthly outgoing expenses and since you would already have the primary residence loan, you will then know based on your income how much you can afford to do investments.

With LOC, typically it will be on a LLC, in which case your are just guarantying the loan, which will not show up on your credit profile as the loan has been given to an entity not an individual.

If I was in your shoes and reading your priorities, do your primary mortgage first.

Hope this helps.

Trevon Peracca do you mind sharing the company you are talking about?

Trevon these people are all very intelligent and experienced.  Listen to them and you will be successful eventually.  I sent you a PM so read it and feel free to contact me.

Paul Stout, Broker

I would run from this company. Sounds like a scam with high fees.

Have you approached local banks or credit unions to see what they can offer you?

I would go for the primary home first.

A good JV partner will bring in the funding and let you handle the rehab/prop management

@Trevon Peracca ..I agree with all that has been said.  I would go with the primary residence as in my mind that is the priority.  Timing is essential but I believe the deals will still be there when you are settled things with your primary residence especially if you are in a situation where you need to move fairly quickly. @Mark Ainley ...I would be interested in those lenders as well if you do not mind sharing them with me.

Jerry Stanford, Real Estate Agent in IL (#475166354)

I strongly concur with @Percy N. ´s comment - this company sounds incredibly sketchy, and I cannot imagine how they are providing a legitimate service. How can they negotiate an LOC on your behalf that you would not (with proper preparation) be able to do on your own? Are they misrepresenting your financial situation? Or are they just preying your perceived vulnerability in your age...?

I also vote that you focus on your primary residence; the time to invest is after your family is in a stable position, your finances are in order, and you can put the proper focus and dedication into the work required without the pressure of everything else falling apart.

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