Over-Leveraged / Fear of the First Deal

[Alex Boyce]

Like most new investors starting out, I have a few good things going for me (steady income, great credit, education resources, support from family), and a few barriers to overcome (no cash, no assets, limited network). I'm determined to be successful and take action, despite starting with only part of the puzzle. Here's what I'm looking at... because I don't have the cash to fund a deal, I want to go with traditional lending for the mortgage and open a LOC to borrow the down payment and rehab costs. I'm working on my RE Agent License, which will allow the commission to help offset the closing costs. Then after the rehab refinance to pay off the LOC and hold as a rental. Assuming I find a good enough deal, I won't be over-leveraged because I have forced equity through the renovations, putting my total loan in (or below) the 80% LTV range. Are there problems or dangers with this plan I'm not thinking/aware of? Am I not putting enough weight to the risks? I'm also worried if the market goes down, then I've lost my "forced equity" and could potentially be underwater and/or stuck with an operating loss if rents go down as well.

[Matt K.]

If you max out the LOC will you qualify for the new loan?