Seeking Example: Unsecured LOC to buy rentals

[William S.]

I've reached the point where I'm out of personal funds to get 20% down. I've heard/read people that are using LOCs to fund their deals, yet no specifics.

Can someone provide an example with numbers showing how they used a LOC to purchase a rental(s)?

[Vic Caldwell]

I have a personal LOC at my bank. It works like a revolving charge account. If I need $$ i call and have that amount deposited into my DBA account. This allows me to move quickly when good deals come my way. Just closed on one. So I'll use it as example.

REO listed on MLS 40 days at $70K - est ARV $100K (conservative) - reno budget $25K

Bought with quick closing (10 days) for $50K CASH (called bank had funds transferred day of closing and wired the funds to seller) Seller took less because it was an "As-Is" cash deal. No waiting for inspections, No FHA, No buyer trying to find lender, etc...

Rehab contractor draws weekly (call bank Friday afternoon and transfer enough to cover draw)

Materials/Supplies (put on my CC and get points, pay off before interest charged - call bank ...) 

NOTE : I only draw money when I spend money to keep interest charges minimal

When we get to 85-90% completion I start shopping for commercial real estate loan. I usually use the same bank where LOC is at as this has shown bank that I know what I'm doing and has allowed for increase in LOC. If I did my homework right upfront and there are no major budget killers I have used $75-80K of LOC, the property appraises for $100K and I get an 80% LTV note (amort 10-15-20 years depending on what makes sense) based on the appraisal ($80K). Pay off the LOC (with minimal interest expense) and I have a newly rehab'd property which I can get top $$ rent for, have 20% equity in and most importantly NONE of my money at risk. With LOC paid off I am ready for the next opportunity to present itself.

HOPEFULLY!!! project done in 30 days to minimize interest.  (I usually plan for 60 days)

How monthly cash flow fits in as another discussion but it is part of my evaluation of the property. I am a BRRRR advocate and am building for retirement so long term cash flow is important to me.

Hope this helps.