Ed, Terry - What is Working Line of Credit? - Posted by Dave T

import · April 3, 1999, 6:53am

Posted by Bill Taylor on April 06, 1999 at 20:27:52:

Ed what are you are you and Terry going to expect us to bring to the seminar in Atlanta. I have already contacted my bank and have now received a 150000 line of credit secured and then he told me I could use that to purchase and fix property and then he would finance prop at 75%ltv on a separate mortgage loan up to another 100000. Did I do this right? I have been in the bus 18 yrs. with over 100 units of investment prop. Just getting into flipping and really looking forward to the seminar so you can show how to propell this line much further. Any advice would be appreciated.

import · April 3, 1999, 6:53am

Posted by Dave T on April 03, 1999 at 07:53:38:

At the convention, Ed Garcia suggested getting a working line of credit. I don’t know what this is, could someone explain it a little better for me. What is the collateral for the line of credit? Do I have to have a business entity to qualify for a working line of credit?

My bank is well versed in Home Equity lines of credit, but somehow I don’t think this is the same thing.

import · April 3, 1999, 12:52pm

Re: Ed, Terry - What is Working Line of Credit? - Posted by Ed Garcia

Posted by Ed Garcia on April 03, 1999 at 13:52:53:

Dave:

There is a big difference between a 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 past
performance 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.

Dave, I hope this has been of some help.

Ed Garcia

import · April 6, 1999, 9:47am

Re: Ed, Terry - What is Working Line of Credit? - Posted by Sheik

Posted by Sheik on April 06, 1999 at 09:47:52:

Good info Ed,
Thanks.

I’m not ready for this yet, but when I am…How do I approach a bank to establish a working line of credit? Do I just show them the past deals I’ve done as proof?

I’d appreciate any tips you offer in this respect.
Thanks.

Sheik

import · April 6, 1999, 11:09am

Re: Ed, Terry - What is Working Line of Credit? - Posted by Ed Garcia

Posted by Ed Garcia on April 06, 1999 at 11:09:34:

Sheik:

There are many things you have to present to the bank.
Yes, you should show them your past deals along with a working plan.

The Bank not only wants to see what you have done in the past, but
what are your intentions for the future. In many ways this gives the
bank the ability to see how much you are going to be using the line
of credit that they give you.

That is important to the bank because they make their money on our
usage of the line. If they see that you are not that active and maybe
buy one or two properties a year, they may not be to excited to give
you a line. On the other hand if they see that you are active and are
utilizing your line, allowing them to pick up fees and make their
money on the line, then they will bend over backwards to help you.

If an investor does a deal here or there, then the line may not be for
them. Many of our investors do deals on an on going basis, and a
working line of credit could be extremely valuable to them.

It can allow you to make better deals, because you can make cash
offers to the seller. Also in a hot market, the seller will not be as
acceptable to take a lease-option .

It can allow you to do more deals, because you can close faster and
give cash to the seller, who may not be in a position to carry-back,
or do a lease-option.

It can give you better costing on your money, because the bank will
usually charge you two over prime.

It will give you confidence when making offers, because the seller
will know that you have a way to go. Many times when you offer a
lease option to a seller, the seller thanks that you don?t have any
money and are not for real.

Sheik, I hope that this helps.

Ed Garcia