Hey all! I'm looking at getting my first investment property in the 30 days or so. I can get a line of credit to start somewhere between 27-30k my private banker told me. Just wondering what your thoughts on this is? I'm looking at coming out of pocket with as little as possible. I have thought about even putting my cars up as collateral. Here are two scenarios that were presented to me. Thoughts?
1.)
With a property purchase, we would look at you providing 25% equity for the purchase, which the line of credit could be used for. So here is a sample scenario:
$60,000 purchase price
25% down = $15k, advanced from the line of credit
$45k purchase money loan based upon the value of the home
The loan rate for the purchase money would be around 5-5.25%, the line of credit rate would be in the 5.25%-5.50% range. The rate quoted is not dependent upon your credit score, we just need to understand why the score is at that range and has it been improving.
Any improvements to the property would need to be paid for with your cash.
As we have discussed before, I think you should start with a flip property, maybe even a couple so that you can build up your cash and then use a portion of the cash as collateral for a larger line of credit. If you look at this first property as a buy-and-hold, you will have cash advanced on the line of credit that won’t be completely paid back to $0 and you will have your own cash in the property for improvements that you won’t get back out until you sell the property.
2.)
I’m going to throw out some possible terms, though I want you to know that everything is subject to final credit approval.
Option 1) If you are wanting a line of credit secured with the autos, we will need to establish a financial covenant something to the effect of the line will need to rest at $0 for at a minimum of 10 consecutive days. In other words, this would be ideal if you are planning on a flip. This would be a commercial note limited to 80% of the trade-in values of the vehicles and would be priced around WSJP + 2.50% with a 1% origination fee of the loan amount. Repayment would be the interest-only
Option 2) If you were wanting to use the proceeds towards a down-payment of a rental house. I would probably suggest a traditional consumer auto note? This would not have the needing to rest at $0 stipulation, and will be a ‘normal’ auto loan. We are willing to go up to 100% of Blue Book trade-in in these cases and the interest rate is: 36 months-4.0%; 48 months-4.25%; 60 months-4.25%; 72 months-4.75%. This option comes with $0 doc/origination fee, though I do think there might be some third-party costs of $20 or so. Repayment would be a normal amortization of whichever rate/month you choose.
You can still use Option 2 if you are leaning towards a flip, obviously. I would just suggest not going 1 if you plan on holding it as a rental given the covenant that will need to be in-place.
