There are several ways to obtain the financing you need to get your real estate business off the ground. The options include home equity loans, personal loans and business loans. However, in most cases, your best financing option is a real estate line of credit. A real estate line of credit, also known as a no doc business line of credit, is used by nearly 90% of all small businesses. It has a few drawbacks but also offers many great benefits you won’t want to miss out on.
What is a Real Estate Line of Credit?
A real estate line of credit is similar to your personal credit card. It offers a certain amount of money that you can use for a variety of real estate expenditures. You can use the money to buy almost any type of commercial or residential real estate. You can use it for business travel expenses. You can use the money for building repairs and improvements. You can also use it for business-related expenses such as hiring an attorney, accountant or office staff members.
Naturally, you can use a business loan for the same purposes. However, with a business loan, you only have a fixed amount of money to work with. You also have to repay the whole loan with interest. With a line of credit, you only pay back what you use. Once you pay the money back, it’s available to you for future purchases and investments. You don’t need to fill out a loan application every time you need money. You simply draw on your line of credit to obtain needed financing.
How much credit you get depends on a number of factors. New investors can get up to $250,000 (or more) with multiple credit lines. Experienced investors may be able to qualify for a credit line with a limit well over a million dollars. Your personal credit history will also affect your real estate credit line limit. An investor with a good credit score and history usually won’t have a problem obtaining needed funding. Additionally, you can increase your credit limit by paying your credit bills on time.
How to Prepare Yourself Before Applying for a Real Estate Line of Credit
There are some things you’ll need to do before applying for a line of credit for your real estate business. Consider the following pointers to make wise, well-informed decisions.
First of all, consider how many lines of credit you want to open. You don’t have to stick to just one, even if you are a brand-new investor. You can obtain various lines from one or a number of lenders. However, you don’t want to stretch yourself too thin. Because your real estate credit line will likely be a no-doc loan, it will have a fairly high interest rate.
Take a close look at your personal finances. You need to have a high credit score to apply for a business line of credit. It’s also wise to pay off your credit bill balance before you apply for a loan. If you can’t do this, at least pay more than the minimum payment for the month.
Collect the paperwork you’ll need to apply for a line of credit. If you are a new investor, you’ll need to show your personal credit score and credit activity. Lenders will typically want to see the last five years of credit card activity. They’ll also want to see you have access to at least $5,000 in personal credit. Experienced investors also need good personal credit. Additionally, they may want to show a business credit history to obtain large lines of credit.
Choose your lender carefully. You can obtain a line of credit from a number of financial institutions. However, some lenders are better than others. You need to make sure that any offer you are considering is an unsecured line of credit. If not, the lender may be able to put a lien on your properties if you don’t pay your loans back on time. You should also check the interest rates on various lines of credit. Some lenders offer special deals (e.g. 0% interest for 12 months) but these only last for a certain amount of time. After that, the interest rate may rise.
Don’t Apply on Your Own, Consult with an Expert
Now you know the benefits of applying for a real estate line of credit. You’ve also gotten to know some pitfalls to avoid when applying for one. It’s best to talk to an expert and get help with filling out an application for a real estate line of credit.
The Small Business Brain team partners with a third party funding source that has been proven to be a good option for many real estate investors. One reason is that they specialize in providing small business loans and lines of credit. This means that you’ll be working with people who know the business financing industry and understand how lenders work. They also offers other complimentary business services that new and experienced entrepreneurs and investors alike are sure to appreciate.
You’ll get personalized assistance from experienced business financing experts. The company will use custom software to analyze your financial and credit situation. They will then tell you ahead of time how much money you’ll qualify for. More importantly, they offer a variety of real estate credit line options with limits ranging from $5,000 to $250,000 (with multiple credit lines). Click here to find out if you qualify.
How to Get the Most Out of a Real Estate Line of Credit After You Get Funded
Gaining access to large sums of money is sure to help your real estate business take off. However, it’s important to use this money wisely in order to increase your line of credit. Experts recommend starting slow and only using up to 30% of your line of credit at any given time. This means that you may have to wait to make large investments but the wait is well worth it. Making small investments that turn a steady profit will help you make payments on time. As you continually pay your bills on time, you’ll gain access to more funding. This will make it possible for you to make large investments in the future.
It’s also wise to take advantage of any rewards your line of credit may offer. Business credit, like personal credit, often offers discounts for certain types of purchases. Using your credit for qualifying purchases can help you save a considerable amount of money in the long run.
She has spent the last decade assisting entrepreneurs with starting new businesses, obtaining startup and working capital and growing their customer base.
She enjoys writing about her experiences as an entrepreneur and using data and information from reliable sources to back up what she writes about. Through her writing she aims to educate other entrepreneurs on how to obtain capital and build successful businesses doing what they love.