Lender · Knoxville, TN · Member since 2015 · 55 posts · 48 votes
Howdy all,
I am looking into applying for an RLOC (revolving line of credit) in order to flip houses in the DFW area. I am looking for some advice. I currently have two houses with some equity that I could use as collateral but I would rather leave them out of the equation. My question is this, if I create an LLC as the borrower for the RLOC and I have an individual with a high net worth be a guarantor on the RLOC and I show a strong business plan outlining the cash flow from the purchase and sale of properties will the bank feel comfortable lending to me not using the houses as collateral? Has anyone done something similar to this?
I am thinking a $200k RLOC, would look for houses under $100k needing about 20-30k of rehab with an arv of at least 50k more than purchase price. Those are just rough numbers, let me know what yall think!
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Hi @Will Coleman. I've talked with several banks and credit unions and they all seem to be in the same boat of wanting to see 2 years of LLC history. I've had some that wanted 2 years of tax returns as well, personal guarantees, and revenue minimums. My advice would be to pick up the phone and start making calls to local community banks and credit unions and see what kind options they have for you. It may be pretty difficult to get a 200k LOC for your brand new business with no business history. You may have to try getting a personal line of credit or use the houses as collateral (even though you said you don't want to).
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Hi @Will Coleman. I've talked with several banks and credit unions and they all seem to be in the same boat of wanting to see 2 years of LLC history. I've had some that wanted 2 years of tax returns as well, personal guarantees, and revenue minimums. My advice would be to pick up the phone and start making calls to local community banks and credit unions and see what kind options they have for you. It may be pretty difficult to get a 200k LOC for your brand new business with no business history. You may have to try getting a personal line of credit or use the houses as collateral (even though you said you don't want to).
Lender · Knoxville, TN · Member since 2015 · 55 posts · 48 votes
8y
@Bob Okenwa Thanks for the response! Do you think with a guarantor that has enough liquidity two years of LLC history will still be a factor? I plan to call a banks here soon but I want to be as prepared as possible before doing so.
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
Most bank money is government backed which is why it has so many rules behind it. You need a lender who is playing with their own money and own rules.
A 2 year business history is a standard ask of most lenders. Do you have a history of flips or an existing rental portfolio? A hard money lender or hungry local bank will probably be willing to work with you if you have some type of background even if it isn't two years with this particular LLC.
When I called around to hard money lenders I found one willing to offer a $1MM line of credit. It was at 9% and I would have had to pay 4 points on the money borrowed. The deal I was looking had a margin similar to what you are looking at and I decided the financing costs were too high relative to the risk and potential return.
The less qualifications, history, collateral, etc. you bring to the table the higher your financing costs are going to be. On the lender's end, why would they lend you money at 5% with no financing fees when they could lend that same money on a much safer 20% down payment fully operational house.
Looking at your potential example deal: $150,000 sale price. 6% fees to realtors and maybe another 2% in closing costs. This leaves you with $138,000 coming your way closing. If you're buying at $100,000 and putting $30,000 into it you have $8,000 left over for profit, financing charges, holding costs, etc. That would be pretty thin if you have high financing costs or anything unforeseen comes up during the project.
Long story short, you can find the financing you are looking for if you make enough phone calls. If you have a lean deal the financing is going to cost too much. If you are buying low enough and selling high enough the cost of your financing doesn't matter.