What do you think of line of credit against cashflow properties

5 Replies

Hi Everyone, I'm a landlord and recently wanted to pull some cash in order to do remodeling. The problem is banks are not lending at the moment and LTVs are limited.

Do you think it's a good idea to get a credit line based on your rental income from another property? for example, if you get $10k/mo from a property in total, then you can borrow up to $120k against your account receivables and therefore don't need to go to the bank for 2nd lien or try to refi with higher leverage. I'm curious if that need exists and whether there is an appetite for such solutions.

Here is the idea in a nutshell: While the current lending is usually limited to 70% LTV, sometimes owners have strong cash flow that they would like to leverage although they can't get a higher LTV or the cost of refi would be high, or they simply don't want to refi, rather just pull some working capital in a temporary way. Since in residential investments, the rental payments is relatively easy to assess (people pay rent before they pay medical bills), it's a product that would have a high collection rate and therefore the interest rate can be somewhere between hard money lending and mezz loan rates; all of this without the hassle of a lengthy process and with no resource on the property (just on the person or a direct integration with the rent collection/settings up a lockbox for collecting rents and dispersing them to the owner bank account minus the monthly interest payments). The role AR data plays in the underwriting process is quite significant.

Would REALLY appreciate to hear your feedback.

You are thinking of a kind of factoring arrangement with rents serving as receivables? Creative. I suspect the interest rate would be much higher than on a HELOC. Why not go for that simpler solution?

@Darius Ogloza Exactly, think about it as HELOC for rental property owners, and rather then equity-based, it would be based on the AR(account receivables).
Thing is HELOC is mostly for owner-occupied borrowers, it requires a second lien, and it's a lengthy process (weeks),
What I'm thinking is a line of credit that is being approved and funded within 48-72 hours, no lien on the property, just general recourse on the borrower or routing rent payments via the lender as a processor (remaining funds go to the borrower's account so all expenses can be paid as usual).

It's quite similar to fundbox, blueline or clearBan: but this time dedicated to RE landlords.

I hear you - interesting idea. Curious what lenders on here have to say.   

Just FYI: I was recently able to get a HELOC on a pure rental from First Republic up here in SF Bay Area.