Creative financing for real estate investments – revolving credit line

establishment of a line of credit

Growing your real estate business is an exercise in thinking of new creative ways to raise capital so that little or no money comes out of your pocket. The less of your own money you pay, the greater your leverage and the greater the chances of making sizeable profits on any trade.

An effective method of raising capital is to establish a revolving line of credit with one or more financial institutions. You might want to start with your local bank, where you already do business.

Let’s say you have a savings account with at least $5,000 cash in the account. Apply for a loan for that amount (the savings are the collateral) and take that $5,000 to another bank, deposit it and apply for a loan for that $5,000. After a few weeks, pay back the first loan with the 5,000 euros from the second loan. Once you do this a few times and your repayment history is built up, you can apply for a revolving line of credit to fund your business. (There are investors who have executed this plan with as little as $500.)

The key here, of course, is establishing a good reputation, borrowing small and repaying quickly. From there, increase the amount of the loan. This type of integrity is prevalent among the executives of financial institutions. They will be happy to do business with you.

The advantage of a line of credit is that once it is set up and established, it is ready and waiting for you to use it. There are no waiting times and no forms to fill out. You can negotiate your real estate deals with much more flexibility and confidence, knowing you have the capital to close quickly.

home equity line of credit.

If you own your own home and have built equity in it, you have the money to grow your real estate investment business.

A home equity line of credit (or HELOC) is similar to using a credit card in that it has a credit limit. This limit is determined by your credit rating and the amount of equity in the property. Once the line of credit is established, it’s a simple process to transfer funds from your HELOC or even write checks directly from the account. The good thing about a HELOC is that interest rates are typically lower than payout refinance mortgages, and there are tax benefits, too.

The interest you pay is only on the money used, not on the total loan amount. Same goes for payments – you only pay for what you used. At a later date, you may be able to renegotiate for a higher line of credit as your home equity increases, especially if you have made timely over-minimum payments or home improvements.

home loan

When it comes to equity in your home, there is another option that is similar to HELOC and that is a home equity loan. This type of loan uses your home’s equity as collateral and is completely separate from your mortgage.

With a home equity loan, you can potentially borrow 90% or more of your home’s value. One of the great advantages of a home equity loan is that you can repay the loan early with no penalty.

bargaining power

Whichever route you take in terms of using a revolving line of credit or using the equity in your home, with this cash available you are well equipped to negotiate the best bargain real estate deals. If you find that willing seller, you can put cash on the table and close quickly. And you will almost always be able to get the best price.