Leveraging money to pay 20% on commercial loan

2 Replies

Hey BP,

So I've been waiting for my lender (Gulf Coast Bank) to get back to me about my commercial loan that I applied for. My guy called me yesterday and said I'm approved for a loan amount of 100k( I wish it was more but hey, it's a start), the LTV is 80%, so obviously I would have to come up with 20%(well half because I have a partner). I'm trying to find creative ways to leverage other peoples money using credit cards, LOC's etc(stop me if this is foolish). I guess I'm curious to what are the risk when maxing out credit cards and LOC's to bridge that gap. Or even opening more accounts. Will this have my credit score to low to move on to the next flip once I'm done with this one? I know I would be making payments on multiple accounts at one time, so I will have to add those numbers in. I know there are many ways to do this but I want to make the smartest decision the first time. If you have any experience or advice on this matter it would be highly appreciated. FYI: I will be in the New Orleans, Metairie, Harvey, Gretna and Marrero area. Thanks in advance

-Brandon

If you're strictly looking to flip the house, then using the credit card or LOC is not going to affect your credit score going forward - provided of course that:

1) You sell and make a profit.

2) You take that profit and the first thing you do is pay down your card.

If you were to lose money on your flip and couldn't pay down the card or LOC, then it would affect your credit score and may be the difference in getting your next loan or not.

If you were not able to sell the house and wanted to keep it, then you may have no way of paying those things down which would be the same as above.

So what are the downsides of using credit cards for a flip? None - provided you break even on your flip and use the break even money to pay it off.  But if you get stuck with the flip house somehow or lose money on your flip and can't pay down the cards, thats where you could be in a bit of a bind.

Maxing out a couple of cards and/or LOCs could limit your ability to get loans in the future.

Doing so temporarily is one thing. But with any flip, you just never know if that temporary will be permanent as not every deal makes money.....


In my mind, it would be a calculated risk. If you have some cushion in your profit, then I would do it.  You basically have two choices really:

1) Sit on the sidelines while you're saving enough money so you can do the deal without dipping into credit cards or LOCs.

2) Take the plunge now and, if it works, pay off the card and now for the second deal you should have some profit in there so that you won't have to use your credit cards to fund anything. Or at least a lesser portion of it.  Eventually, it would be none though if you could keep doing deals and making money.

If it doesn't work, then sit on the sidelines until you pay the cards/LOC's off.

To me, #2 is the most obvious choice. #1 guarantees you're going to be on the sidelines.
#2 gives you more control to take action now, and only in a worst case scenario would you have to sit back on the sidelines again.

Thanks @Mike H. That makes perfect sense! We're definitely going with option #2. We've been doing a bunch of studying and asking the right questions to the right people, so I'm pretty comfortable with taking the calculated "risk".  

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