Q. We have heard stories of other investors, including Tim...we think??, establishing lines of credit at local banks to use to fund deals. We recently attempted to do this at our local lender. We didn't even anticipate any objections, but sure enough...they objected. We explained to them our business and what we needed (an LOC), and they informed us that the LOC could not be used for the purpose of funding real estate deals if the property were to serve as the collateral. They told us that unless we had "a gold bar" or some other type of asset to pledge, that we would have to do individual "loans" on the properties. With that said, how would you go about setting up an LOC? Are there any "magic words" we should use to convince the lenders of the idea? Are there certain lenders more apt to do an LOC for this purpose?
A. A line of credit from a bank is great to have but you are correct that most banks are not excited about a line of credit for real estate. If you have a traditional business they are more likely to loan you money.
We had one of our private lenders introduce us to the president of a small bank in our area. They provided a line of credit but we were required to secure the dollar amount with other property we owned and vehicles.
If you are just getting started, I think borrowing from private lenders would be easier and simpler than going to a lending institution.