Flip Thy House

Local Lenders Rock

Raise your hand if you’re an idiot. Just me? Woo hoo!

Sometimes I really have to shake my head in wonder at my capacity to make things much harder than they have to be. Like, seriously.

I’d been reading on assorted REI forums for years about investors that fund their flips via lines of credit with local lenders in their area but never paid too much attention. I mean, sure, I definitely saw the value in that approach, but I assumed that these investors were much farther ahead of the curve than I was, net-worth wise, and that any of local banks wouldn’t have much to offer me, being the relatively small fish that I am.

We’re wrapping up the refinance of House #1 and the lender’s office is in the same building as the main local bank in town. I mentioned to our loan agent handling the refi that I might be interested in a hard money lender option, if they had one, and she told me to talk to the bank, and that they could easily beat anything she could offer me.

Talked with the SVP of the bank shortly after and based on our credit and other good stuff, he had no problem offering me a $100,000 line of credit at 7.75% interest, as long as we bought a $10,000 1 year CD through the bank and agreed that the deed to any property purchased would serve as collateral if we defaulted on payments for the line of credit.

He said there’s be no issue with using the line of credit for both the purchase of the property and repair costs, as long as I was willing to regularly submit invoices/receipts to them to justify repair costs.  There’s no annual fee attached to it, so no harm, no foul if I end up not tapping into it, and he’ll waive any set-up fees as far as establishing it, assuming we get the CD through them.

Which, all in all, is pretty much ideal for me, as far as what I was looking for for the next flip project. Yeah, it limits me slightly to properties under $100K, but that’s what I’ve been eyeballing anyway. I was pretty surprised that they’d go as high as $100K on the line of credit, as when I set up a line of credit for my business I had to fight tooth and nail to get just a $25K line of credit, despite having twice that in my business account on a fairly regular basis for a year or two.

I also dropped by and talked to the real estate agent we’ve worked with locally, and he was pretty optimistic about the local market, and said they’d had decent success of late getting potential buyers funded. There are apparently a couple of local lenders still wiling to do 100% financing as long as buyers can document sufficient income.

All in all, pretty dang encouraging. Not only would tapping into the line of credit for flips help on the peace of mind side of the equation (as far as not funding repair costs solely from savings), but it’d boost the bottom line as well, as far as cutting out most of the costs associated with traditional mortgages that I’ve simply had to eat so far. Not to mention giving me much more negotiating clout as far as going after beat-up REO properties and floating out lowball offers that I can write a check for, you know, tomorrow.

Still no definite plans but I can’t see an reason not to set up the line of credit, which should be up and running in a few weeks.