Large personal loan for first flip?

[Dennis J Marsack]

Hey guys, my Fiancé and I were discussing possibly taking out a large personal loan (from like prosper or even financial..) to fund a fix & flip deal.. what are your thoughts on this? Could it work to buy a foreclosed home? Haven’t narrowed a specific deal yet, just looking at options.. seems to be a lot of foreclosures popping up in our area.. 

any insight would be greatly appreciated! 

Thanks

Dennis

[Dean I.]

In my personal opinion, when it comes to starting a new business, do whatever it takes (morally) to your business off the ground. Sometimes that means getting personal loans or lines of credit in your personal name, until you are able to do it in the name of an LLC or other entity. Ultimately, you are going to want get everything out of your personal name and move everything to the name of the business and keep it that way.

When I first started flipping houses, I was able to find a bank that would lend to my LLC (which was not easy), but I didn't have the capital to fund the down payment or the remaining 20% of the rehab costs. This forced me to get a personal credit line, which to this day, I still use ONLY for the business. From there, I got a couple other personal lines to keep things moving and allow me to do multiple flips at once. Now, that my LLC has been established for almost 2 years (6 weeks shy), I have been able to get 2 large credit lines in the name of the business. The bank required me to close out one of my personal credit lines, in order to get a larger business line of credit. Eventually, I will zero out all of my personal lines of credit and only use the business lines of credit.

One thing to keep in mind is that these personal lines of credit will affect your credit. When I max out my personal lines of credit, my credit score tanks. When I max out my business lines of credit, my credit score is unaffected. What this means for you is that as soon as you sell the house, you need to pay off the credit line immediately and maybe even wait till your score comes back up, before you try and get another house. I know for me, my score has dropped 100+ points before, but within a few weeks (depending on the time of month) my score will go back up after paying off my personal credit line.

Finally, even if you have to start by using personal loans (which I have also done) or personal lines of credit, you need to establish your LLC now and do as much in the name of the LLC as you can. The sooner you can start establishing a history of the LLC making money, the sooner you can get your LLC approved for loans and lines of credit.