Hard $ vs. line of credit

8 Replies

Hello all, my husband and I are planning to buy our first flip in 2016. We are new to bigger pockets and are loving all of the amazing advice and community tips! 

I've previously been in the mortgage industry and have experience rehabbing homes with my Dad. 

Hubby and I  bought a 2 family last year and rehabbed it, we are hoping to sell it next year for a profit (60-80K) and use that capital to start flipping homes and eventually do this full time. 

I'm knowledgable about hard money loans, but I'm trying to gain more insight on the possibility of a REal estate line of credit. From what I've read, you need an LLC, 700+ fico, open credit cards etc. Then supposedly they give you 50-200K that you can draw on when needed. No interest for 6 months? This seems like a flippers dream and almost too good to be true. I plan to start calling around to some of these companies soon, but wanted to check with you all first and ask about experiences and thoughts? I'm sure there are fees associated but can't figure out what they are.

Thanks in advance for any advice.

Stefanie 

Let me know if you find an equity line like that...

ITs simply a company aggregating credit cards for you.. finding you one's that have introductory zero interest fee's... they charge from the adds I see on the marketplace about 3 to 5k for this service and one of the companies requires you to travel to Dallas and spend three days or so filling out applications or something like that.

Although since your in or were in the Mortgage industry maybe you know this.. would not having 200 to 250k in credit card availability hammer your fico ?  Not that is may matter.

However I do believe you can probably just like BP  DIY  not sure you need any guidance to get credit cards.

They then claim to roll you into business unsecured Lines of credit.. I have seen those advertised for the last 30 years and cannot tell you anyone who got one of those.. Lest they were already a very successful business with 2 years tax great credit.

I have a mid 6 figure unsecured LOC I have had with my local commercial bank for 14 years now.. it gets renewed on an annual basis for 1 point and its based on current rates so right now I think I am at 5.5%... But I know what kind of relationship you need to get one of those and what kind of net worth and provable income.. and its not just fico score. but you can work into those.. prior to the melt down I few more in the 50 to 100k range with WM and BOA one got called I have the other but never use it.

good luck with it.. If you actually ever get this to work please post.. there is not a week goes by then there is someone else selling the exact same service over on the market place.. which leads me to believe its a daisy chain deal for mlm or just sales guys working for the mother ship. but they claim you don't pay unless you get a LOC..

If you're curious as to what sites I'm looking at here are 2 of them:

Businessfindingengine.com

Midwestcorpratecredit.com

As I said, it sounds very good so of course I'm wary, and that's why I'm asking the community for experiences.

I have read about some good experiences with similar companies on biggerpockets, but can't remember if the posts were from trusted members. I'll have to go back and find them and post the link. 

Originally posted by @Jay Hinrichs :

ITs simply a company aggregating credit cards for you.. finding you one's that have introductory zero interest fee's... they charge from the adds I see on the marketplace about 3 to 5k for this service and one of the companies requires you to travel to Dallas and spend three days or so filling out applications or something like that.

Although since your in or were in the Mortgage industry maybe you know this.. would not having 200 to 250k in credit card availability hammer your fico ?  Not that is may matter.

Jay, yes that would hit your fico hard, but these companies do not report to the 3 bureaus as stated on their website. Thanks for the heads up about the credit card aggregating, didn't even know that existed!

@Stefanie Willie-Bonglo

  well if they don't report to the fico folks... and they are offering Unsecured loans.. to folks just starting out with minimal assets and cash reserves ( not suggesting that's you or your family) .. I would be highly suspect .. I mean I have been lending money for 40 years and borrowing it... that type of loan would be an easy way to go broke... I see these guys trolling for those that really want to make it happen and have no chance at a bank..  but someone has to buy the paper.. and lenders don't give out 0 interest loans too often.. Only credit card companies and auto and consumer finance when you have the companies subsidizing the buy downs.

I see this on the lending club sites were they are making these small loans to consumers. wonder when the other shoe will drop there..

We know what the default rate on CC are that's why the interest rates have to be so high once you get into the situation were you can never pay them back.

However again let us know how you do... Would be interested to see if someone actually got a loan.

@Stefanie Willie-Bonglo . You said real estate line of credit but I am assuming you mean a Heloc? If that is not correct just disregard what I'm about to say. I can only share my experience with you with Wells Fargo and have been very happy. I have a Heloc in which they offer me a line up to 75% of the equity on my property. I pay a $75 a year fee which gets waved every time I take a draw and lock in a rate. 

What I have found to be key is that I must call within 5 days to lock in my rate on any draw or it will be stuck at a variable rate. Currently that rate is about 5% but can go up to 18%. I just took a draw a few weeks ago so the rates I am mentioning were current then the options were 1 year at 1.99%,  3 years at 3.49% or 5 years at 3.99%, these could be amortized or non amortized. There is no option of no payments for 6 months but if you take the one year at 1.99 that's pretty great.

@Stefanie Willie-Bonglo I'm exploring the same option for a REI LLC that I plan to start. They charge a 10% success fee up front and then there is interest after the first 6-12 months. These are essentially business credit cards. If you keep your balance at 50% of your credit line, once interest is about to kick in, you transfer the balance to the other half of your credit line and re-set the interest clock so you remain interest free for another 6-12 months. If course they charge a fee for each balance transfer just like a regular credit card.

Did you wind up going this route? Did you find out more about it from others? 

Originally posted by @Stefanie Willie-Bonglo :
...Then supposedly they give you 50-200K that you can draw on when needed. No interest for 6 months?  This seems like a flippers dream...

Stefanie 

Really? Hard money loan with no interest for 6 months? The cost of hard money funds can be as high as 18% -- not including other loan fees; the amount lent may be something like 65% of ARV. If you were referencing HELOCs, the exact feature of the line may vary based on who the offer is from.

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