The Real Estate Investor Business Line of Credit

Real Estate Investor

If you are an active Real Estate Investor you may qualify for a business line of credit that will allow you to purchase, rehab, flip, wholesale or buy and hold distressed properties as if you were a cash buyer. With your credit line you are a cash buyer. This offers you many advantages including the ability to purchase properties on a moments notice and you will not have to qualify for financing. You can purchase through auctions where you get great deals. You can buy bulk real estate transactions and become a true wholesaler. This program is available for those who are active in residential or commercial investing and are established business entities such as “C” corporations or LLCs.

The Line of Credit

This is actually a revolving business line of credit secured by commercial real estate. This means the loan is made to a business entity not an individual. The collateral can not be owner occupied residential property. So in fact any company that owns real estate can qualify for the program.  This B.L.O.C. (Business Line of Credit) works like a revolving credit card were you can borrow up to the maximum credit limit, pay the loan down monthly if you choose to and then borrow up to the maximum limit again. Unlike your personal visa or master card, there is a term. At the end of the term the line is renewed, paid off, or refinanced into a different program. Also, unlike your personal visa or master card the rates are very good. The typical rates range from 4% to 8% depending on the financial strength of the company.

 

The Qualifications

There are two main qualifications for the B.L.O.C. product. First is the collateral. The lenders set the credit limit up to 65% of the property value as long as the cash flow of the business will support the loan. Secondly is the cash flow. The business must have been established for an absolute minimum of three months and have sustainable regular cash flow. To determine the cash flow the underwriter reviews the bank statements for the past three to six months to determine the ability to repay the loan. This is how the maximum credit limit is established. You will note there is no mention of personal credit score or personal income. This is a business loan and there is no minimum credit score requirements. The rates may be a little higher than the banks but the credit line is not based on your credit score and you do not have to be in business for years to qualify.

The Advantages

There are many advantages to have a line of credit versus a term loan on your property. The major advantage is cost and as a business person cost is key to all of your decisions. This is how you save money with the business line of credit. The actual up front costs to do the loan are cheaper; there is a brokers opinion used to determine value vs appraisal and the application fee is lower or non existent. The closing cost are lower; there are little or no junk fees like underwriting and / or processing. The biggest savings are in the interest payments. If you have a term loan you pay a maximum payment each moth based on the full amount of the credit limit. The line of credit you only pay interest on what you owe. And if you decided to pay down your loan you would have to apply again and incur upfront and closing costs assuming you could get approved again. The costs of the line are much lower than the loan.

The  next major advantage is flexibility which is none existent in a loan and it helps the Real Estate Investor and business owner move quickly to take advantage of opportunities at the lowest costs. Plus the property used as collateral can still be leased for positive cash flow and it appreciates and the equity grows.

Finally 

As a Real Estate Investor or Small Business Owner you could take advantage of a Business Line of Credit even without perfect personal credit. This will help you grow your business and of course make more money.

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Own to Rent / Buy and Hold Real Estate Investor Financing

Real Estate Investor Financing

Wannabe Investors, now is a great time to invest in residential properties. Whether your strategy is single family, two to four unit buildings, condominiums and town homes as well as multifamily apartment buildings the combination of great prices and accessible financing makes this an optimal period for investing.  If you are a Real Estate Investor operating in the business buying residential properties to hold for profit from the positive cash flow and equity appreciation, there were only a few financing options available. For conventional residential one to four unit properties the standard conventional guidelines limits a borrower to only have four properties financed, including their owner occupied personal residence.

Now there is a great solution for you. Even while conventional financing guidelines severely limit who can qualify (and this has only gotten worse in the past few years) there has been a rise in private lenders that will lend on residential investment properties with similar guidelines as commercial apartment financing. This is great news for the those in the business of owning and managing their own portfolio of rental property. Here are a two examples that were not often available even a few months ago.

Blanket Financing

Like all options discussed in this article this financing is for business entities, such as limited liability corporations or “C” Corporations, and not for individual sole proprietors. This is to make sure the lenders are not violating any residential lending laws meant to protect consumers as the purchase and finance their owner occupied homes. Inherently these collateral must always be non-owner occupied and used for investment and business purposes. Understanding this, it is natural that any blanket mortgage must cover at least five units. Anything less would not be considered commercial lending.

What is a Blanket Loan?

A blanket loan is where two or more buildings are encumbered and used as collateral for one loan. In other words one mortgage can cover two properties or one hundred properties versus two to one hundred loans. Could you imagine being a small business owner with fifteen or more projects that you own and are holding that each have separate loans. Generally, they are like buildings in a relatively close proximity, but that is not always mandatory. For the Entrepreneur who seek to buy and hold multiple properties for long terms the blanket loan could be a great option.  Additionally, it may actually cost less even though there are not many programs available for these small business owners.

No Seasoning Cash Out Refinance

The term “seasoning” in the mortgage world means how long an owner has owned the specific property. It can sometimes mean how old a loan is, but for our discussion seasoning is limited to ownership of property. The underwriting rules for a conventional lender requires a property to be “seasoned” or owned for at least one year for the value to be based on the current appraisal versus the acquisition costs. For example if the purchase price was $50,000, the rehab cost is $10,000 and the current appraised value is $100,000 the maximum loan would be 75% of the purchase price or $45,000. The value is $60,000 based on the the seasoning rule. With no seasoning requirement the the loan amount would be 75% of $100,000 or $75,000. This real estate investor strategy allows the investor to buy and hold plus earn an immediate profit of $15,000 if they refinanced (minus closing costs). This allows the investor to have similar immediate return as a flipper yet they still own the property with all the benefits of the cash flow and equity growth. This works on small transactions as low as this seventy five thousand dollar deal to as high as multi-million dollar commercial apartment buildings. Quite often with commercial lenders the seasoning time may be two years cor cash out refinance transactions.

No Seasoning Cash Out Blanket Loan

Finally and most importantly, there is the ability to use both of these strategies simultaneously. This offers the businessmen to access cash in their real estate portfolio they they would not have access to with any conventional funding programs.

These are just two financial options that can help the small business real estate investor succeed when they choose to own to rent or buy and hold their properties for long term cash flow and equity building.

 

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Blanket Mortgage for Residential Real Estate Investors

Residential Real Estate Investors

Now is still a great time for investors to purchase residential one to four unit property. Property values are relatively low, interest rates are low and conventional financing is available to a point. The problem occurs when you have more than 4 properties financed. Today the answer is blanket mortgage financing. This allows the serious investor an opportunity to have own 10, 15, 20 or more units. When an individual investor decides to have a real estate business a blanket mortgage can help them continue to grow.

Blanket Mortgage

This is a commercial loan for businesses that will encumber multiple properties under one loan. For residential investors this allows them to have stable long term financing. This can get them off the hard money roller coaster, especially if they are looking to hold instead of flip properties. Blanket loan financing will not limit how many units they can have financed as does conventional residential financing.

Here are the basic guidelines:

  • Minimum loan amount is $500,000
  • Minimum number of  residential units is 5
  • Minimum individual property value is $50,000
  • Minimum occupancy is 90%
  • Properties must be owned by a company – not individual
  • Property types include: single family, 2 to 4 unit, condominiums, town homes, multifamily properties and mixed use properties that are at least 60% residential.
  • Up to 75% loan to value
  • Minimum Debt coverage of 120%
  • Perfect Credit not mandatory

Finally

If you are a residential real estate investor with more than 5 units that can use stable long term financing you should consider a blanket loan for purchasing property, refinancing your existing portfolio or getting cash out to help you invest in other properties.

 

 

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