Anyone here ever open enough personal LOCs to fund entire deals?

Question

I'm considering a strategy of applying for and (hopefully) opening multiple personal credit lines totaling at least $100k, and using them to fund 100% of my rental purchases & rehabs. This would be as an alternative to hard money. I'm thinking I can get personal credit lines of $20k+ from most credit unions and small banks, so at least theoretically I should be able to open a handful of those to use as cash to fund some deals (and then cash-out refi to repay).

Has anyone ever done something like this? I've never opened a personal credit line before so I have to assume there's something I'm missing and it wouldn't be as simple as I described above. Please share any thoughts and criticism.

Jay Hinrichs · Answer

just be cautious of what the open credit will do to your fico..

Chivas Miho · Answer

Hey Account Closed- I forgot to mention the negative impact to your credit score too. If you're going to do this, make sure to avoid opening any new credit cards. The way the credit score system works is the 3 biggest impacts are 1) on time payments, 2) credit utilization, and 3) average credit history. #3 will impact your credit score first. If you open 4 lines at once, you'll drop your average credit history. Example: you have 2 credit cards now at 10 years old and 5 years old = average credit history of (10 + 5)/2 lines = 7.5 year average. If you open 4 more new lines now = (10 + 5 + 0 + 0 + 0 + 0) / 6 lines = 2.5 year average. Could drop your credit score some major points, but if you have excellent credit now, I wouldnt be too worried about it. If you need more info - Credit Karma is a great resource for free.

Chivas Miho · Answer

Aloha Account Closed's statement on the DTI ratio when you refinance. When I did my first cashout refi, I told my bank the money would immediately go to paying off the LOC which was true. I didn't have any issue, but my balance was only $40k to repay back to my LOC.

I found it best if you could borrow some of the funds from friends or family and use the LOC to cover the balance. The benefit here is that you could ask friends/family for interest only payments (not interest plus 2% of principal)

Good luck!

Jay Hinrichs · Answer

in practice almost impossible to get those credit lines UNLESS they are secured by your real estate.

TRUE unsecured LOC from a bank is very very tough to get.. Very. at least at any large amounts and by large I mean 300 to500k ..

Jim Goebel · Answer

Account Closed

As in credit card?

As I understand it you'd have to use a merchant services such as square, etc to pull the money from a credit card. There's fees in that.

There's also APR in that, typically. People have done this kind of stuff but every time I look into it I stop because it appears too convoluted to me.

Account Closed · Answer

Hey thanks a lot for the info. That's interesting about the 2% mandatory monthly principle repayment. I'll have to check with my banks before I apply, since that might be a deal breaker for me. Interest only (until I'd pay it all off in one lump sum after refi obviously) would definitely be ideal for me.

Account Closed · Answer

@Jay Hinrichs @Jason DiClemente

Good point guys. I hadn't thought about that, so thank you. I'll need to ask my portfolio lender if that would be a problem. Hopefully I could just sign something promising to use the cash from a refi to repay the LOCs if it would be a problem for them otherwise.

Any other thoughts and comments anyone?

Account Closed · Answer

$300k+ would be awesome, but I'm only just starting out and would be very happy to get $100k in total credit lines. I only own one property currently which is worth ~$175k, but not much equity in it. I went to a handful of local small banks and CUs, and based on conversations there it seems like most would be willing to offer me $15k if not $25k or more in unsecured lines based on my credit and income. The goal would be to buy small residential properties for now.

I'm just trying to identify any holes in this plan before I execute it to know what I'm getting myself into.

Account Closed · Answer

No, definitely not credit cards. I mean personal, unsecured lines of credit from which I could write checks. Like HELOCs but just with a (likely) higher interest rate and not tied to an existing asset.

Anyone here ever open enough personal LOCs to fund entire deals?

Anyone here ever open enough personal LOCs to fund entire deals?

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