Cash vs mortgage

[Mitch Monmouth]

Here is what I was thinking:

1) Buy rental properties under an LLC in cash to get the best deal with quick cash closes.
2) Perform any needed repairs and install tenants
3) Get a business loan (personally guaranteed) for 60-75% of asset values against the LLC and properties based on assets and cash flow, hopefully at 5%.
4) Repeat either under the same LLC or a new one.

Not having much experience, I may be totally off here as to why this may not work, so please shoot me down! Thanks :)

[Chris Martin]

Here's my disconnect. While I understand what Bill Gulley says, it is generally very difficult to get a lender to arrange financing under a clearly pre-arranged agreement when you are buying great deals with with quick cash closes. Almost always the property simply isn't ready. It needs repairs, a tenant, etc. and needs to be stabilized first. If they do lend, it will be a fraction of your acquisition of the impaied asset.

By all means, talk to a lender and explain what you are doing. Understand their underwriting. Minimize the chance of financing problems. Tell them you will only bring them stable, productive rental property. Remind them that you are taking 100% of the initial property risk and your job is ultimately to bring the bank the least risky deals because of your work stbilizing the property, eliminating deferred maintenance, getting great tenants, etc. Their financing, after all, is based on the wonderful, finished, productive asset... not on the smelly POS house you bought and fixed up.

But at the end of the day, your cash is at risk. If you fail in #2 of your plan, you may need to add a #3B) Sell the smelly POS house becuase Mitch screwed up. I've been there. The great thing is that the bank will only know if you decide to tell them.