Sick of not being able to get a line of credit......am I missing something?

Question

My brother and I have flipped 2 homes exclusively doing all the work our selfs. I also personally own a home that should net me around 60k when it sells.  Were about to purchase a home ( for 47k and tax assessed at 160K) that we plan on fixing up and living in and hopefully be able to get a heloc on it in order to continue growing out flipping business.   We have some skin in the game now but it doesn't seem like the bank will give us a line of credit unless we show some " regular income".  I have a back up job as a union electrician that I could go back to just incase thats a last resort to get the heloc.  So the question is if we're sitting on a house thats paid for thats worth 160k and I personally have 60k in my bank account is a bank going to give us a line of credit on our 160k home and if not do I have any other options besides going back to my regular ass job just to get a heloc?  Thank you BP community!

Account Closed · Answer

Go to a small commercial or community bank.

Shaun Weekes · Answer

Hello Paul,

It's going to be really hard to get a HELOC without 2 years of tax returns however if you can find a loan officer who has a lot of experience that will benefit you. For example Freddie Mac often only requires one year tax returns for self-employed borrowers. You will however have to prove that you've been in business for at least 2 years. If you can do this with a CPA letter or Articles of incorporation that will suffice.

Now this would be a cash out refinance and not a HELOC so coupled with the comments on commercial, local banks, HML's and looking for a good Loan Officer you should be able to get that cash out and use it to grow your business.

So if you have tax returns how did you have you CPA structure them? Do you have an LLC set up or anything like that? If you show a bank 1040's coupled with k1's and 1120's they will take you seriously. Set yourself up for success and you'll be fine. Since you're doing all the work yourself that tells me that you and your bro are focused and dedicated to what you do. Get a CPA to set you up if you haven't already and you'll be good to go.

Good luck and keep us posted on your progress. You're going to be just fine Paul.

Steve Vaughan · Answer

For short-term needs I would think a collateral lender would be a good fit.  If I had $60k in the bank, I may use that or collateralize that as well.  If my bank wouldn't lend against that, I would move my money to a diiferent bank that would.

David T. · Answer

@Jay Hinrichs has summed it up pretty well. You need to find a HML who will work with you and that means you have to put together a business profile. This is the same as a personal resume, but with a stronger focus on your independent accomplishments.

Also, you are well ready to put together a good business plan which will help you focus on where you want to be in a few years. It will be well worth the investment and professional help with this from a local CPA with experience of working with the building industry is where you might look.

Put a budget on that too. $500 should get you something to impress the world.

You seem to have got your stuff together and you really should not be taking the time to be frustrated. You're in a great place with this adventure, so just get on with it and move your ass onto the next level.

Best of luck!

Paul Kerr · Answer

After my current home sells I'm gonna try everything you guys have told me here.  If it doesn't work this time I think I need to get serious about finding a hard money lender.  I've been fully dedicated and making the right moves to get this far and feel like going back to "a regular job" just to try to get a line of credit would be a step back in the wrong direction.  I feel like I'm one line of credit away, whether it be from a bank or a hard money lender, to take this to the next level where i'm doing multiple flips at a time.  I'm going to join the madison REIA and start networking more than I have been.  Thanks again for all the input BP community!  Keep chasing them dreams!

John Semanchuk · Answer

I second several of the replies above.   With a small local bank I was able to get two loans earlier this year on a townhouse for my daughter and one for myself using existing property I own (and the townhouses) as collateral.     Once the bank gets to know you and believe in you, it will grease the wheels for future loans as well.

Franklin Romine · Answer

@Paul Kerr  Start by asking for a small line of credit.  How much are you asking for?  I started with $20K and was able to convenience the bank to $100K after about 1 year.  It wasn't a personal line, go for a commercial line of credit.

Frank

Jay Hinrichs · Answer

Not enough track record... banks usually look for 2 plus years and multiple deals you need to start with private and or HML get 10 to 20 behind you and TAX returns that show 100k plus a year taxable income based on the flipping business.

And of course your local community bank is the place to start  have a frank conversation with one of the SVP's  they will tell you what bar you need to reach to be considered and packaged up and taken to loan committee for approvals.

this is one of the toughest types of loans to get.. That is why HML exist and Private lenders have opportunities..

Your just to small yet and not enough experience would be my take on it.  but keep going

YOu may talk to a bank about setting up a loan against your deposits but ONLY if this is going to lead to bigger and better things.

I had a broker in Charleston last week tell me he would lend me money if I used my securities as collateral at 50%  and they would only charge 8%... I gently informed him I can get that deal for libor or 1/2 over from any Investment banking house.. but it was a nice try.

Mike Hurney · Answer

@Paul Kerr You're doing good so far!

as @Mary B. says, for a conventional loan I need 2 years of Self Employed history, as on a tax return.

So while you're waiting I would put a package together for a Conventional Loan then shop that package at local banks and to friends and family for modest returns (maybe offer 8-10%). Hard Money Lenders ONLY IF you get a Home Run lined up (because they 15-20%).

As a Mortgage Broker I need certain documents, most of my borrowers have no trouble putting them together and reviewing them with me. BUT when these same folks go to a local bank, or Hard Money Lender or Friends and Family they seem outraged if they have to supply any more than some numbers on a cocktail napkin;-)

Michael Henry · Answer

I second @Mary B. point. In addition, many smaller banks allow you to use your cash as collateral. You put it into a CD and borrow against it. You could look into a blanket loan too. That would be a commercial loan where you collateralize more then one property.

If you have a track record of doing flips put a portfolio together of all your deals; include: purchase price, rehab costs, before and after photos, sale price, and etc.  The bank might ask for this information but more importantly you can start going after private money.