Use my own cash or lines of credit from the bank?

6 Replies

So the initial purchase i use my lines of credit for he purchase of the property. Then I use all my rental income and cash from my business account to rehab it and when I run out I use more of the lines of credit. Am I doing this right or what I try and use my business account to keep from going into more debt and paying more interest. What’s the best way to do all this please? Please really is I was to use the lines of credit and banks money my coc roi would be sky high? Because really I would be putting no money into my deals.

we all used lines of credit to start- and in a  pinch we still use our credit to quickly purchase materials for refurb...then using the rent deposits- we pay off the Lowes card/ Home depot card.  When you get to a level you feel comfortable, say 10 properties?  i suggest you pay off your notes, one at a time - using rent money and your own cash flow....then as each property is paid off you become safer economically ( what happens if 5 of your rent homes go empty and your not working due to an illness? Good luck making 5 mortgage payments with no income)... everyone has thier own technique we are now 40 plus rent homes - with no mortgages....Good Luck!

Wow that’s awesome thanks for the input so try and pay lines of credit off first? Not use all the lines of credit?

@Joshua D. I feel that the answer to your question here is based on if you are "buying and holding" or "flipping". If you are flipping these properties, you get your money back right away when you sell the home. You then pay down your Line of Credit (LOC) and do it all over again. However, if you are buying the properties to rent them out then you are going to hit a wall pretty soon. You may not be able to get lines of credit anymore once you hit your limit with the bank you are using. So the right strategy here is to refinance these homes withe a traditional 30 year fixed rate mortgage if you are buying and holding. When you refinance you can receive 75% of the value of the property (after 6 months) and pay your line of credit back and do it again. So the goal there is to make sure you are buying homes well below value. There are lots of rules to the "buying and holding" strategy so if that's the direction you are going feel free to ask more questions. Thanks!

@Andrew Postell Thanks Andrew so the lines of credit we use are a revolving lines of credit once you pay down you can reuse them. We have used 2.5 lines of credit off of are propeties so far. Didn’t realize there was a max number of lines of credit you can use. My banker is not in office today but I’m def gonna ask him if there is a max. So I do all buy and hold properties so far. But I use both lines of credit and my rental income and anything else we have as far as cash. I use the line of credit only when I really need to. Is that the right way?

@Joshua D. while I don't know your financials specifically there will always be a limit...your's might be 15 or something but it might be 5 as well. But trust me there is a limit somewhere. Since you are buying a holding properties the item I would caution you on is that Lines of Credit (LOC) are for temporary money. Meaning since those LOC rates adjust, they might adjust in a way that might make things difficult for you. I'm sure they don't adjust often but please understand that the bank wants you to be in a adjustable rate. it always them to hedge their risk. So the LOC rate will ALWAYS be lower than the prevailing market rate. In 10 years, if rates are 9%, your ARM will be 7%...don't hold me to these numbers, I just want you to understand the concept here. So if you are buying and holding, refinancing now might actually put you into a slightly higher rate than your LOC has. But you will know what your fixed rate will be for the next 30 years. There's no "right" or "wrong" way to do anything really but most investors want a fixed rate on their properties they hold AND they want access to a LOC for quick money. Maybe the right thing for you is some combination of the two. Hope this helps!

@Andrew Postell so I talked to my guy at the bank who’s in the commercial loan department and he knows no reason why there would be a limit as long as I have collateral to put up being my properties.

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