Is this my only shot?

Question

Well, I'm really spinning my wheels here. In the past couple weeks I've called 30+ small banks/credit unions trying to line up financing for purchase/rehab. A 100k line of credit would be ideal.
 
Of those 30+ banks I got some interest from 2 commercial loan officers.

This week I met with both of them, and its not looking good. We have 7 rental properties, 5 of which are free & clear (all owned in an LLC). But they are very reluctant to lend on them.

Anyways, when I met with the last one today she spent the first 10 mins of the conversation telling me how this was virtually impossible, then she came accross a statement in our paperwork showing 200k in investment accounts and her whole tone changed.
I told her we are open to creative options to get the financing and she said they may be able to work with us on a cash secured line of credit.

Is anyone familiar with this type of financing?

What capital/loan ratio would be typical? (ex. 50k in CD at bank gets us 100k line?)

If they want to go with a 1:1 ratio (100k in CD gets us 100k line) is this even worth it? Doesnt make sense to me then, we might as well just use our own cash.

I am hoping to leverage the properties, but since they don't want to lend on them alone, has anyone had luck combining cash with free & clear property to get the collateral up?

Thanks
SR

J Scott · Answer

I started with my bank this way.  We put up $50K in a CD to get $250K in "credit."  We still had to put up 20% of each deal, and then the 80% came out of that credit line.

This was a way for the bank to reduce their risk, and for me to get my foot in the door...

Josh Green · Answer

I offer those to by brokerage clients. (the secured line). Their investments stay in the investments (still getting the market exposure) and I give them a line against those at right about prime rate.

Josh Sterling · Answer

@Steve, we might go conventional as a last resort, but we already have 2 mortgages
so we will hit the 4 loan limit fairly quick. I'm looking for long term solution so I don't have to worry about financing every time I fond a deal.

@Jon, thanks for the link! More phone calls to come.

@JScott, can you elaborate on your setup? What are the terms of the loans you are getting? Is a separate loans or a line of credit? We would love to have financing of that size available and be able to use some of it for long term holds and some for flips.
Do you use this financing to purchase you long term properties?

Thanks everyone!

Jon Holdman · Answer

FDIC Institution Directory

Steve M. · Answer

SR

is there a reason you haven't tried to go conventional?  especially with the rates where they still are right now .... i'd try & go that route before putting up more properties for a single loan, not to mention, you are likely looking at a balloon payment after 3 or 5 years and less than stellar rates.

Josh Sterling · Answer

Thanks for the replies guys. I've been looking for small banks in the area. I found a list of credit unions online, there must be a list of every bank and it's total assets/ # of branches somewhere?

Steve M. · Answer

what types of banks are you looking in to?

Commercial banks with more than 10-15 branches - not even worth it.

Small regional banks with <$1 Billion in holdings is probably your best bet.

The only one I talked to that I even had a CHANCE with, was a small Farmer's Bank.  Instead of going to the commercial loan side, I went straight to the Director (? not sure what you call higher ups at regionals)

After about 20-30 minutes of discussing our goals, they seemed to be ok with everything.  We have to put up 2 properties for about $100k, but we did get our foot in the door.

at the end of the day, I wanted to max out our current mortgages with BofA (I currently have 2 with BofA) and ended up with a conventional loan - 20% down - at 5.125% which is great for an investment prop.  It has now been quit claimed in to my LLC although the loan is under my name.

Don't believe I will ever get called on it, but you may want to try something like i did if you have trouble finding funding for your LLC.

Mitch Kronowit · Answer

Why should banks be lending anymore? If they want money, there's always hitting up Washington D.C. for more taxpayer's money or simply charging little elderly ladies excessive fees for writing over 5 checks a month.

I've taken out loans like this at our credit union a few times in the past. They call them "secured signature loans", an oxymoron if you ask me.

But you're right, there really isn't much point, even though the interest rate is super low, because you can't touch the cash that has been encumbered by the loan. I guess it's psychological, the loan let's you believe you still have your nest egg safely tucked away at the bank.

I remember this from an old SitCom (What's Happening, I believe):
Roger (to Bank Officer): "We would like a loan."
Bank Officer: "Well, do you have any collateral?"
Roger: "What's 'collateral'?"
Bank Officer: "Collateral is things of value, like stocks, bonds, or jewelry."
Dee: "Well, if we had that stuff WE WOULDN'T NEED A LOAN!"

Is this my only shot?

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