Working Line of Credit - Posted by Cassity

Posted by Cassity on May 26, 2006 at 12:38:35:

Ed,
Thanks for all the comments. And I won’t give up.
Do you go over such issues at your conference/seminar coming up in June?? Like I said, I’m still working out scheduling and would have to talk you into letting me slip in, but I would really like to be there. If not, either for schduling conflicts or the seasoning rules for the seminar, do you offer mentoring or such services as a side business. The three grand for the seminar is certainly well worth it if I even just pick up one piece of valuable information. Same goes for mentoring. By the way, I am NOT one of those people who constantly ask how to tie their shoes. I’m usually the one people come to around here for help and pride myself in my ability to figure things out on my own. However, your knowledge is obviously well beyond my own in this matter…and I’m so stupid or arrogant to think I can’t use some assistance from time to time.

At any rate, I really appreciate your time on this board. You don’t come across such attentive teachers very often.

Cassity

Working Line of Credit - Posted by Cassity

Posted by Cassity on May 24, 2006 at 13:34:41:

I’ve been presenting to bankers for a few weeks now attempting to get a working line of credit ($200k). Been told by several VPs that it was the best SB presentation they’ve ever seen and they loved the business model. I have a killer credit rating (770ish), a debt service ratio for a $200k wloc of over 6.0 (thats SIX TIMES the debt service). They all love that, but what they don’t like is the lack of assets to attach to. I’m a newbie with little experience, few assets, gobs of cash flow from other sources, and an awesome credit rating. Still nobody is willing to risk a line without assets to attach to, regardless of my education and preparation in this business.

Of course, I’m willing to go the traditional route with mortgages to build up equity. Just thought I’d take a few swings at getting a WLOC first.

Does anybody have any suggestions in either direction? How do you guys sway your bankers into giving you lines of credit? I know I’ll get a WLOC eventually, with equity on the way. I’m just trying to push through before its a homerun…

Cassity

Re: Working Line of Credit - Posted by gene

Posted by gene on May 25, 2006 at 15:58:13:

As a mortgage broker, I have also gotten clients unsecured business lines of credit from time to time.
This is how it works:
The applications can be “Full documentation” or "stated income"
For “Full documentation” the most I have ever gotten anyone was $100,000.
The borrower must be in business at least 2 years verified by tax returns, business license, or CPA letter.
Sometimes “stated income” can be used for net income.
But stated income will get you around $25-35,000.
I got $60,000 for a medical practice recently as “stated income” but this is rare.
I have seen credit scores as low as 680 under some circumstances but it’s good to have 720+, particularly where “stated income” is necessary.
In your situation, view it this way:
you are asking the bank for a substantial amount of money unsecured.
Either ask for a smaller amount or offer some assets.
Let’s face it, someone asking for $200,000 has to have some unutilized assets sitting around.
Offer to collaterialize the 69 Z28, the drill press or the software copyright, It’s shows you’re “putting some skin in the game”.

Re: Working Line of Credit - Posted by Ed Garcia

Posted by Ed Garcia on May 25, 2006 at 01:35:27:

Cassity,

Don?t you just love it when a banker tells you how much they like your business model and how well presented your package is and then tell you that they can?t help you?

You can always tell when a banker lies, their lips move.

For example in you case they tell you that you?re maintaining a debt ratio for a WLOC for $200,000, however you lack assets to attach.

That?s poppycock, the properties as you purchase them is what secures or collateralizes the line. You trying to tell me that the banker couldn?t figure that out?

I don?t recollect you telling us that the bank couldn?t lend you the $200,000 at this time but would be willing to start you out with lets say $150,000 or some figure accordingly.

Cassity, I hate to brake your bubble, but many of my students are self-employed and don?t always show their income. Some are what we call asset rich and cash poor. I constantly have to modify an individual?s financial picture as well as present a business plan with a business model including multiple exits strategies in the event of a market change, which in many places we?re experiencing now.

I would need more information before I could comment any further to identify what the story really is, I just want you to know that bankers are not always up front.

Ed Garcia

Sounds like a question for Ed - NT - Posted by John Corey

Posted by John Corey on May 24, 2006 at 15:42:35:

NT

Re: Working Line of Credit - Posted by Ed Garcia

Posted by Ed Garcia on May 26, 2006 at 06:06:24:

Gene,

I don?t mean to sound condescending, but the information you gave Cassity, is the first information a bank tells a new customer and is more then likely what she has already been told.

She said she is seeking a WLOC (Working Line Of Credit) aka Flooring Line, aka, Warehouse Line, aka Guidence Line, aka Commercial Line of credit designed for Real estate acquisitions. The loan amount of this type of loan is usually $250,000 up into the millions depending on the borrower?s volume and cash-flow. If I were to guess the average amount I have helped procure for my students it would be $500,000.

I have a young lady who is attending my workshop as an Alumni this June named Maria Prusakowski who attended my workshop in June 2004. Maria was a Registered Nurse and part time investor out of Pa.when she first attended. She had done 5 deals prior to the workshop with out any credit lines. Shortly after the workshop Maria obtained her first credit line for $300,000 and that year did 18 deals. Maria has since quit her job and has gone full time. This year she is on course to do 40 deals and has 2 WLOC?s totaling $1000,000. I have another Alumni attending this June named Charlie Fuller out of Huston, Texas who again had no credit lines when he first attended in Nov. 2002. Charlie currently has $8000,000 and last year did over 100 deals. Charlie has returned to every workshop since to network. While networking Charlie hooked up with another Alumni named Tom Giallonardo out of Forrest Hills Louisiana and the two of them are currently building a Strip Center in Louisiana anchored by a Dollar General.

An unsecured line of credit you?re suggesting is limited to small amounts and can be used for anything, and although the line sounds as though it?s unsecured, it?s backed up or secured by the borrowers personal guarantee or the borrowers assets which is why the bank is referring to Cassity?s assets. When Cassity states they want assets to attach that also tells you the bank wants additional collateral.

Ed Garcia

Re: Working Line of Credit - Posted by Cassity

Posted by Cassity on May 26, 2006 at 02:36:40:

Gene, what you are talking about here is my plan-B. Still waiting for a few banks to get back to me on my WorLoC proposal. And you’re right, there are always little assets sitting around. The banks I’ve talked to though want real property to attach to. And like I said, that is on the way. Just a matter of time and a few deals getting done. I was just trying to bypass the cumbersome “mortgage method” of flipping. I’ve had long talks with bankers lately explaining to them how their mortgage based rehab products simply are NOT the best fit for a rehab business. A “WorLoC” fits our business model like a glove. I don’t think they liked me telling them their products were substandard. lol (I was a little more diplomatic than that)

Re: Working Line of Credit - Posted by Cassity

Posted by Cassity on May 26, 2006 at 03:05:24:

Ed,
Yeah, bankers are a riot. I was amazed at how many “VPs” I ended up explaining basic economics to or how many couldn’t think out of their little box for half a second and listen to how I was going to make them more money than their current products were (I was offering 2 points over their going WLOC rates).

We talked about how the properies would secure a portion of the 200k. What they were balking at was the rest of the 200 above the acquisition price, which I wanted to use to pay for the rehab. They all said if I had 200k in equity attach to (including the acquired property) they would do it.

I understand why they want the security. I just thought I would throw 6x debt coverage and a killer rating at them and see what happens. I’ll get there. Next time I go in to talk to these guys I’ll have several deals and a chunk of equity under by belt.

I’m the exact opposite of the self-employed people you see a lot of. I am asset poor and cash rich. For now!!

Really, the only things I am missing in the whole picture are assets and experience. I know those two things are major, but they go hand in hand and I know exactly how to get them both. That is an ongoing and neverending process, which I began not long ago.

The WorLoc is DEFINITELY the way to go with rehabs. So I am going to use the traditional mortage method (slow and ugly) until I have enough equity (will be turning the rehabs into rentals), at which time I will dump the mortgage method for the worloc method (fast and sexy).

BTW, is case you were wondering I have two structures set up to case these to methods.

Also Ed, I am going to try to get down to your seminar next month. I know you don’t take people (as a rule) who haven’t completed several deals because you don’t want to have to explain basics to newbies. However, I would challenge you to stump me on virtually any REI topic…including asset protection and IRS codes.

If I can’t catch you in June I WILL be attending at another time.

Thanks Ed

Re: Working Line of Credit - Posted by Dave T

Posted by Dave T on June 01, 2006 at 01:26:37:

Ed,

I am stuck in the same “banker’s box” you just referred to. One bank I am working with has given me a Real Estate Credit Line. This line is limited to $200K total, and is further limited to $100K per property at 80% LTV. Rate is prime plus one. I have had this credit line for the past three years, and this is the maximum line this bank will go without collateralizing property I already own.

I have $2MM net worth, mainly equity in real estate, but most of it is located out of this lender’s market area so they can’t use it to collateralize a larger credit line. Furthermore, any property I already own must be free and clear before they will accept it as collateral.

This is a small regional savings bank. I tried talking with a larger bank and they said that they did not do these “speculative” loans. I talked with a commercial mortgage broker who also could not get anywhere.

Re: Working Line of Credit - Posted by stephanie

Posted by stephanie on May 26, 2006 at 08:34:32:

Cassity take heart. I went to the bank last week with a proposal and offered two of our rentals as collateral and still got turned down and we were only asking for $30,000.00. The real kicker was that there is 60,000.00 in equity in these two properties to work with and we have banked at this bank for 10 years. Anyway, it was suggested to me to find a private lender or an angel lender. I have not found anything yet but I just started in this direction. I would be happy to send you any info that I come across.

Re: Working Line of Credit - Posted by Ed Garcia

Posted by Ed Garcia on May 26, 2006 at 06:47:42:

Cassity,

Based on what you have told us and my business model, I could easily get you $250,000 to $300,000. The reason I?ve said my business model is because I don?t know yours even though you?ve said that you have a good one.

Cassity, every thing the bank has given you as objections such as having to have been in business for 2 years, not having attached assets etc I can get around or circumvent. The one thing a borrower needs to demonstrate when obtaining a WLOC, is the ability to do volume. If they can?t show the ability to do 6 to 8 deals a year, then why would they require a WLOC ?

Providing the bank with a reasonable amount of volume now puts you as a banks preferred customer.

The banks attitude and rightfully so is, if you?re going to do only a few deals a year, then you don?t need a WLOC.

Cassity, as you know I assist investor all over the country to obtain this type of credit line with local banks in their own back yard. Banks that I?ve never even step foot in. The reason is I have experience in dealing with banks and when I assist them in putting their information together it?s bankable or I won?t let them go to the bank. My message is you offered the bank 2 points thinking that would entice the bank. The truth of the matter is banks are not equity lenders. They make loans based on credit worthiness and then collateralize them. The cost for a WLOC is anywhere from prime to 2 over prime and 1 to 1½ points.

Cassity, you have to be careful because the bank can easily get you to give them more then you need to when doing business with them. They make everything they tell you sound like it?s carved in stone when it?s not and much of it is negotiable.

I compliment you for thinking bigger and knowing the direction you need to go in, don?t let anyone discourage you, you?re on the right track.

Ed Garcia

Re: Working Line of Credit - Posted by Cassity

Posted by Cassity on May 26, 2006 at 12:53:21:

Hey Stephanie,
Yes, take heart and certainly never give up. I have presented to over ten banks locally and have gotten all possible reactions. Several were genuinely interested in what I was trying to do and I honestly believe they went to bat for me with their underwriters. It’s just that darn box they can’t seem to get out of. Its funny, after you present to several you will become VERY proficient at it and all nervousness will disappear. You’ll find yourself in a position where you know more than your banker and will end up explaining reality to them.

You should be able to get $30k just on personal income I would think… Keep presenting. If that’s all you want right now I’m betting you can get it easy. Just shop around.

Private lenders could work for you too. I’m looking into that myself. There are even some online, but I can’t mention them on the board. Just search for “rehab funding” and you’ll see what I mean. Lots of hard money out there.

If I figure this out on my own or pick up tips from Ed I will certainly relay what I’ve done/learned on the board. I appreciate your offer for the same. I’m sure everyone does who reads this board. Good people. Good info.

Wealth to everyone.
Cassity