House Flipping- LOC or Conventional Financing to an LLC

[Ken Nyczaj]

Hello everyone,

Some of you may have seen my posts about a month ago looking to get into a Duplex in a Condo Association that had questionable financials. Decided to not go that route, and instead partner with a few friends and we are currently working on the Articles of Organization and Operating Agreement for the LLC. One partner is a lawyer which has helped significantly.

We are investing in Maryland , Baltimore to Annapolis Region. Will be house flipping properties at first, then eventually buy and holds.

We've vetted many banks in the area and are down to two local banks that have different philosophies on how we should do flips.

Bank 1:

Conventional financing- 20% down, interest only for 12 months with a fixed rate of 5 1/2%. Will fund 80% of home and 100% of improvements. Fund improvements on a draw schedule. For cosmetic repairs our local bank loan officer will inspect herself, which should keep costs down. Deals under $250k our lender only needs to go to committee after underwriting, which supposedly takes less time. We will only be borrowing less than this dollar amount.

Bank 2:

LOC secured by Real Estate, Investments or other type of liquid asset. Rate is prime + .5 to 1.5% depending on financial strength, floating interest rate, but that can be negotiated for a fixed rate if financials are strong enough. Interest only renewed annually.

I see advantages in the LOC to be able to close on houses faster, and be a "cash buyer". No underwriting necessary and no draw schedule with inspections after each rehab. Disadvantage is putting primary residence up as collateral, but we may have enough cash in checking accounts to use that instead. Also, having a floating interest rate isn't great if we sit on the house for some time.

Anyone have advice on which strategy to go? Any guidance is appreciated. Thank You.