Ed, about that credit line.... - Posted by Ben (FL)

Posted by Ed Garcia on March 26, 2001 at 16:36:34:


The 1 million dollar credit line, the way you’ve described it, would be a working credit line.

Ed Garcia

Ed, about that credit line… - Posted by Ben (FL)

Posted by Ben (FL) on March 25, 2001 at 11:58:00:

I read a couple of the newer success stories that mention having done your workshop, then successfully landing credit lines with banks.

One story mentioned that their credit line consisted of preapproval from a bank to finance up to 80% of appraised value on properties up to a total of $300,000.

I haven’t taken your workshop, but reading bits and pieces here and there about the credit line concept, I had imagined writing a business plan with the intent of getting an unsecured line of credit ($50,000 or more). Then, using the LOC, buy a junker, fix it up, sell it, and pay back the credit - doing this over and over, ad infinitum.

Which approach is closer to what you teach? I already have a relationship with a bank that will finance up to 80% of appraised value. The guy I work with said that I should be able to contunue doing that until I have mortgage totaling $1 million. Then, the bank’s committee would have to begin approving eveything above that.

Re: Ed, about that credit line… - Posted by Ed Garcia

Posted by Ed Garcia on March 26, 2001 at 02:05:10:


There are various types of credit lines. The problem with the line you’re looking into, is that it’s really to small to be effective. Now I’m not saying that you can’t use it, it’s just you’re going to limited which I’m sure you’re already aware of.

There is a big difference between the line you’re referencing, an equity line, and a working line of credit. An equity line is collateralized by a house or specific piece of real-estate.

An working line of credit, is a commercial line of credit given usually by a bank. This line is devised as working capital for a business.

For example:
If I own a furniture store and I need inventory. A bank may lend me money to purchase furniture from the manufacture. I now stock the
furniture for re-sale at a profit.

In our case, we purchase real-estate at below market or wholesale. We convince the bank, that our business runs just like the furniture store, and they provide us a working line of credit to purchase our inventory which consists of real-estate.

In both cases the line is secured by the inventory. The bank will usually determine how much they think your line should be, based on pastperformance or track record. As you grow and do more business, your working line of credit can be increased.

A new investor would not be ready for a working line of credit. An experienced investor with a track record, could get a working line of credit, which would allow them from the sellers stand point, to pay cash. In making cash offers you can usually cut better deals.

Sorry to say Ben, but it’s not unusual for people to get confused when working with banks and going in and requesting a curtain line of credit, just to have the bank offer or give you what they have available, and try to get the borrower to accept it in lieu of their
original request.

So you see Ben, the average investor would NOT know the differences of the various Credit lines. Someone with my background would, and that’s why I try to teach it to folks such as yourself, and others in the business. I noticed this, when I was doing my first workshop and had several investors who would tell me, that they already had a Working Credit Line.

As I discussed this with them further, I found out that what they had was, an EQUITY LINE instead.

As a rule of thumb not always, the bank will request a BUSINESS PLAN, etc.

If someone plans to be successful in this business, then they should take it upon themselves to have an understanding of a Business Plan. Many people are intimidated by just the thought of a Business Plan. They have no idea how valuable of a work tool this is
for their success. As a result they try to find someone to write if for them. Unfortunately, much of the benefit of a Business Plan is lost if you have somebody else write it for you. Spending time and writing it out, piece by piece forces you to do considerable thinking and evaluation of your plan.

I could go on and on about what it takes to build or map out your real-estate career to be successful in this business. I’ve said it before, and I’ll say it again. If you run this business off of the seat of your pants with no rime or reason, no direction, you can still be successful in spite of your stupidity. Can you imagine how successful you can be if you do it with a GAME PLAN ( Business Plan).

Sorry Ben, sometimes I get carried away ( smile).

Remember, every time you do something, you’re learning and growing. Each thing you do, is just a stepping stone to the next thing you must do. So no Ben, I don’t think your wasting your time going from one credit line to the next. I think it’s part of your learning
process. Yes, if you can hook up with someone that has been there before you, you can save yourself a lot of time, aggravation, and money for that matter, and that’s why we share this type of information with one another on this forum.

Ray Kroc the founder of Mc Donalds favorite cliché was, " As long as your green you’re growing, as soon as your ripe you start to rot" so my contribution to that is, Let’s not rot, but keep on growing. Don’t be afraid to try new ideas.

Ed Garcia

Re: Ed, about that credit line… - Posted by Ben (FL)

Posted by Ben (FL) on March 26, 2001 at 09:44:39:

Thanks for your response. Not to beat this horse too hard, and I certainly don’t want you giving away your workshop for free, here, but I just want to make sure I understand you response.

Here’s my undrestaing, thus far:

An equity line is secured by property I already own. For example, I owe $50,000 on a house that apprasies for $100,000. A lender will loan me a maximum of $30,000 (no more than 80% LTV), and that equity line is secured by the real estate.

What I have already obtained - a commitment from a bank to finance up to 80% of the appraised value of a property with nothing down required form me, and a total cap of $1 million - would NOT be considered a working line of credit.

Is the working line of credit secured by the property you purchase with it? And if so, is it typically tied to a certain percentage of the apprasied value of the property?

When I started investing, my credit report had not yet been clogged with inquiries and mortgages. I applied for an unsecured Line of Credit with the bank where I had my personal checking account. I was approved for up to $17,000 at 13%. Is that type of line of credit (for $six figures) what you teach as far as business plan development?

Thanks for your help, and I’ll see you at the convention!