Flip Thy House

Line of Credit = Success

Met with the local bank folks yesterday and signed all the necessary paperwork for the revolving line of credit, which should be ready to roll in a day or two. It was actually interesting, as there were a few unexpected items in the legalese, but nothing too troubing, and overall I’m pretty happy with what I ended up with.

As far as the details, it’s a revolving $100,000 line of credit, with a term of one year. I can use it for the purchase and renovation costs of a 1 to 4 family residential home within county lines, but that’s it; no mobile homes, no multi-family, no commercial, no new construction, nothing out of county. Interest rate is 7%, which is due monthly as I draw upon the line of credit. Any draws on the line of credit have to be approved in writing by the bank (for both the purchase of property and for renovation costs). There are no annual fees attached to it other than a $1,000 loan origination fee, and $200 for the lawyer that drew up the original paperwork. As collateral they’re holding a one year CD at their bank for $10,000 and the deed to any property I buy, if I default on the line of credit.

The only thing I wasn’t very happy about was a stipulation they included that from the date when I purchase a property, I have six months to either repay the principal used for the purchase in full or to secure permanant financing on the property. If I don’t repay it in full within six months or secure permanant financing, they can seize the property in lieu of payment. We went back and forth on that one, and they weren’t willing (or able, if you believe them) to budge on it, and I actually asked to think it over for a bit and left, eventually coming back later and agreeing and signing everything.

Only having six months from the date of purchase to renovate and sell a property in today’s market is obviously a bit of a tight window, which is where my hesitation stemmed from. Especially if the home needs major renovations, which is what I’d planned on tackling. Throw in the difficulty in some buyers getting financing these days and the inevitable delays in closing many deals in general, and that could get dicey.

That said, the bank SVP I’ve been working with made it clear that the last thing they’d want would be to seize a property in a case like that, and the clause is only in there to protect them from outright fraud on my part, as far as cooking up a shady deal with someone where I essentially draw out the entire $100,000 and live the high life for a year (or disappearing), and they’d have to wait for the entire 12 months before taking any action, as long as I was paying the interest on time. He said as long as I’m using the funds appropriately and can demonstrate that, they’d be able to grant me an extension to get the house sold, or set up permanent financing through the bank. From their point of view, they make the most money in the long run if I continue to buy and sell houses and utilize the line of credit, and they’ll do what they can to facilitate that, instead of looking to swoop in and seize a home.

Push come to shove, I could scrape up the cash to pay off the princpal balance myself if I absolutely had to and eat Ramen until the property was sold, so there’s always that escape route in my back pocket. I’m not really happy about that condition, but it is what it is, and could also serve as a nice motivational factor to get in and get the renovations done, instead of letting things drag out.

On the positive side, I was pretty surprised that they were able to offer me a 7% rate on the line of credit. That beats the hell out of the hard money rates I was investigating, which were all 15% or higher. And a $1,000 loan origination fee (which I won’t get hit with again if all goes well with the line of credit and it’s extended past the initial 1 year term) definitely beats what I’ve paid mortage brokers in the past when I went with conventional financing for flip properties.

So, all in all, pretty happy with getting the line of credit set up and ready to roll. Now it’s time to, you know, find something to buy.

Long Time No Blog

I know, I know. I’m a terrible, negligent blog owner.

I don’t feel quite so bad being MIA on these here pages, as there’s really been little to report on the REI front. My potential line of credit with the locak bank didn’t quite get signed off on before the US financial crisis of doom, brimstone, and other really, really bad stuff hit (or didn’t hit, depending on your viewpoint), so things have been on hold there for quite awhile.

Things seem to be back on track now, though, and I’m meeting with the bank SVP I’ve been working with on Friday to sign all the papers and officially establish the line of credit. So that’s good news, and should hopefully provide some actual, you know, REI content at some point in the future in these environs.

But probably not in the immediate future, as the renovations on our home are about to kill me. It’s nice having a hard deadline (my wife is having a big party for her 30th birthday on October 25th) to get stuff done by, but I bit off a bit more than I could chew, so the last month or so has been pretty hectic on the home work front, with much of the interior and exterior of the house getting a fresh coat of paint, the guest bathroom completely gutted and renovated, a new garage and deck, and who knows what else.

So the current plan is to tak it easy for a few months and start seriously looking for a property to buy during the winter doldrums. Or maybe a lot to build a house on, as I’ve been kicking around some crazy ideas in that realm as well.