I am a bank credit officer and the biggest request I get from investors isn’t to buy notes…it’s getting lines of credit for their note and/or real estate business.
If you are a BiggerPockets reader you know there are tons of great note deals out there. However, your absolute profit is limited to your personal and/or company’s capital.
Getting a line of credit for your note and real estate business can offer you a competitive advantage for these reasons:
- Positive carry – interest cost on the line of credit is lower than the interest earned on your notes
- Timing – buy notes faster because you have a line of credit already approved
- Bulk purchase – you can negotiate a steep-discount if you buy a portfolio of notes
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Two Tips for Getting a Line of Credit Approved
Now that we’ve gone over the competitive advantage you can have by having a line of credit, how do you get a line of credit for your note business?
Let me start by saying that this is not easy. You probably know from dealing with banks that getting a simple loan isn’t easy. Getting a line of credit for your note business is even harder. However, I believe it’s worth it due to the competitive advantages it offers your businesses as outlined above.
There are two primary things you need to outline to your banker to negotiate a line of credit:
- Cash-flow – hopefully you can cash-flow the line of credit in multiple ways (existing notes, salary, rent, etc), and not completely dependent on the notes you are buying to pay the monthly payments.
- Collateral – carefully outline all of the lendable equity that is in your business and/or personal financial statement. Equity in investment accounts, existing cash, real estate, and equipment is preferred.
Now that you have outlined the above, explain your history in the note business and respective success stories. You will be utilizing the line of credit to buy notes and REO, therefore the bank will then have three sources of repayment: Existing cash-flow, existing collateral, cash-flow on the purchased notes and possibly even collateral from the purchased notes.
Hopefully these steps will increase your profitability in the note business.
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