Is a Business Loan a good idea?

Question

Hello BP, I am a new investor looking to get started in NC pretty soon. For the past year now I have been reading up on different methods of investing in real estate and now I think I'm ready to get started. After careful consideration, my plan is to start with wholesaling, then move into rehabs and buy and holds once I build some relationships and get some experience. The only thing holding me back now is the money and with my current income, starting the business is going to take longer than I'd like. I'm about as broke as a 19 year old college student living with his parents could get and the sooner I become financially independent the better. I'm hoping my REI business will pick up some speed by the time I graduate so I can either start my life debt free or get a head start on paying it before graduation. The only thing I can think of to expedite the startup process is a loan. So assuming there is someone out there that will approve a 19 year old with only 1 year of credit history, would getting a business loan would be a good idea? Here is my logic behind it: I would get a small loan of about $10-$15,000 to cover the startup costs (which I believe can range from $200-$1,000 in NC) and pay for any supplies I need as well as use a big chunk for advertising (mail lists, bandit signs, decals, etc). Also paying the loan off would do great for building my credit which would help with securing funding for future deals. I'd also use it to cover as many out of pocket costs as I can for my first few deals. So to the successful REI business owners out there, is this something you would do? Is that even enough money? I know it would feel good to know I have a business with my name on it at 19 but Is starting an LLC for REI even a good idea? I seem to get mixed answers from this so any and all feedback is welcome as well as any anecdotes for how you all got your businesses off the ground. Thanks

Timothy Tooker · Answer

@Aaron JonesLevi T. is correct in that it is highly unlikely that bank would give you a loan for the reason mentioned above and also, because it is rare if not impossible to get a loan for a business that deals in speculation (especially without a proven track record). He also brings up a great point in that wholesaling is difficult. I agree with him that becoming a real estate agent is a more via able option. I disagree with him in the aspect of not starting an LLC. Having an LLC provides a ton of tax advantages (Speak with a professional CPA that deals in Real Estate for that). They are a couple of hundred dollars to start and more than pay for themselves come tax time.If you are going to be a wholesaler, I wish you good luck and success. If you are good at it, you can make a lot of money and every investor will want to be friends with you. As far as funding to assist getting you off the ground at such a young age, here are a couple of idea's. 1. Talk to family about your dreams and see if any would be interested in investing in you or even partnering. 2. Apply for a credit card to cover the cost until you can close a deal or two. Make sure you do your research about the wholesaling career path. Best Wishes,Tim

Levi T. · Answer

Age, the up hill battle till your 30.. Business loans wont work. You need to look in another direction for real estate investing. I recommend not wholesaling, as it's a lot of work for a little return. At your age, go see if you can get a job working for someone who already does this, or start working as an real estate agent, something in the world of real estate. That way your getting paid and learning the ropes. Then after a while you can branch out and do your own thing (12 months or less type thing), maybe your old boss will become a partner, plus you will know who are the hard money lenders in town and have a relationship with them, so it's easy to sell as your bringing experience from the old job. So you're skipping the first step and jumped right into flipping properties before you know it.Don't start a LLC till you need an LLC. Your only costing yourself money for something you don't need. Good luck!

Mike Dymski · Answer

Unfortunately, without credit or any collateral, a lender will not provide you with an unsecured loan. I am not familiar with wholesaling, but you may have to save enough cash or bring in a partner to do your first couple of transactions before you can pay for more thorough marketing. Good luck!

Timothy Tooker · Answer

Levi T.I agree with you. But if he gets into wholesaling and starts an LLC he can write off his advertising & start up expenses, which will help out on his taxes at the end of the year.

Ralph R. · Answer

Timothy Grothuesmann Could you be more specific about how an LLC creates any kind of tax shield?? My LLC provides liability protection in the event of a lawsuit but all taxes flow straight through to my personal taxes?? Both my CPA and my attorney have stated this?? RR

Levi T. · Answer

You misunderstood me. Having an LLC is good, but setting one up before your need it is a wast of money and time. He is still speculating on what he should do. Unless he is ready to really start buying or doing whatever he plans to be doing in business, he should not be setting up a business. Example would be to setup a LLC when you find a property that your buying vs setting one up months or even years in advance to knowing what your going to be even doing.I don't setup a LLC till we are buying the property. I don't setup a LLC on a business I'm starting till we are setting up shop, investing capital, etc. No point in having one so you can dream of doing business one day. Wait till you are ready to do the business, then setup a LLC.

Brandon L. · Answer

@Aaron Jones Mark Cuban says anyone taking out a loan to start a business is out of their mind. I think a billionaire knows a lot more than the both of us.Use being a broke college student to your advantage. Get a job as an assistant in any business that involves real estate. You will get some experience while getting a check. Living with your parents is also an advantage you will be able to save the cash, or use it get licensed as an agent. 1 or 2 completed transactions as an agent could possibly generate the 15k you are looking for.In the uncertain business of investing the last thing you want is a 15k liability when you are starting out.

Mark Henderson · Answer

Aaron Jones love your spirit. You're going to go far with your attitude. Right now might be the time to save some money, build your credit, study and learn the business. It won't take you long to jump right in and start investing. Keep up the focus. Very impressive.

Aaron Jones · Answer

Mike Dymski After doing research, I determined you're right! Even if I got approved (which I surprisingly did) the payments aren't something I can keep up with on my own right now. Guess I'll have to explore other options. Thanks!

Aaron Jones · Answer

Levi Thornton That actually is a great idea! Working for an experienced investor would do wonders for both experience and building relationships. Honestly this is probably my best option. Thanks for the advice!