Best way to utilize a $500,000 line of credit?

Question

I operated as a house flipper and home remodeler for 3 years from 2014-2016. After three years I decided to try something different and got a job as a sales manager at a car dealership. That job was high stress and 60 hr weeks, so I resigned from my position after 2 years on January 1st of this year. I want to get back into real estate since I’ve missed it the last two years. I am finishing up securing a $500,000 revolving line of credit at a bank. It’s looking like my interest rate will be prime plus a point. My request from the forum is any advice on the best way to utilize this line of credit. I’m located in the midwest where you can get a single family resident in a decent neighborhood for around $80k-$150k that will rent for $750-$1400.

Joe Villeneuve · Answer

You just set up your own goldmine.  You should never need to look for outside funds again...ever.

What's the best way to use that money?  Partner with me...LOL, or buy and flip on a regular basis, taking the profits from the flips to buy rentals.  If you never spend your $500k (seed money), but repeatedly use it, over and over, from flip to flip, you have endless use of the same funds...but it will only dost you once.

Scott Jackelen · Answer

I would consider hard money lending.  In your area you could be financing 3 flips at a time.  Recycle the money 3 to 4 times a year.

Jay Hinrichs · Answer

Secured or unsecured .. big difference. IE is that just a LOC to buy cash flow assets.. or can it be used and paid back constantly..  many would use the funds to BRRRR if rentals is your main goal.

or use it to flip. if its unsecured then JV partners with others could be lucrative you bring equity get half the deal.

Michael Ealy · Answer

Conor,

I am biased for MULTI-Family apartments as an investment.

You can do a BRRRR with an apartment building and in my opinion and experience, it's actually EASIER than houses.

Buy a non performing property at a discount. Renovate it, rent it up. When you increase the economic occupancy, it is now worth more. You can then refinance to pull your money out and you do it with another deal and so on. With $500,000...over 10 years of doing BRRRR you can accumulate 1,000 rental units. Goodluck doing that with houses (it's possible but a lot more difficult). I've done with less than $500K.

Multi's are easier to refinance than singles (specially for 50 units and up). With single family homes, you need some personal income (W2 is preferred by the mortgage companies) to refinance out. With multi's the income from the property counts more and with bigger properties, it's the only income that counts.

Here's an experience I have with a 48-unit building that was 20% occupied when I purchased it but I increased the occupancy in just 60 days using a creative leasing strategy (after I renovated it). There were a lot of hassles/headaches but it cashflowed pretty nicely and after 6 years, I sold it and made over $1MILLION profit:

https://www.biggerpockets.com/forums/311/topics/64...

Conor Lowe · Answer

@Jay Hinrichs

Thanks Jay, I appreciate you taking the time to give me some advice.

Jay Hinrichs · Answer

Ok then will they let you use it for flips.. you would not want to tie it up on drip income.. or do what many do is pay cash stabilize then take to another lending source to repay your 500k.. that's the optimal way to use those facilities.. and what LTV or CTLV are they willing to advance at.. do you need to appraise each one to tag the line.. with my unsecured lines its a check book .. those work quite well.

secured lines have guidances and stuff.. but its a very nice thing to have

Peter Shafik · Answer

I'm actually in a similar position, with around 100k-200k credit line. Some expert on here is going to give you way better advise, but something to think about would be to keep a good portion of it as reserves and use a good amount on a large multifamily/hotel with the help of professional investors, of course. I had an experienced investor told me he would rather spend 100k as a 20% downpayment on a large multi than use several 20k's as down payments for quad, tri, or duplexes. Hope it helps!

Jay Hinrichs · Answer

that would only work if it was a true unsecured LOC..  banks do set up LOC for HML to do as you suggest.. but those LOCs are pretty tough to get and you certainly wont get one without a lot of experience..

Alex D. · Answer

That's incredibly great advice and something I hadn't even thought of.

Conor Lowe · Answer

@Michael Ealy

First off I want to say congratulations on an amazing project. It’s very inspirational and motivating to read. I have been looking more toward multi family lately for the reasons you pointed out. In the past I only had experience with single family. Thanks for the advice.

Best way to utilize a $500,000 line of credit?

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