Credit Lines are usually considered as equity lines, or at the very least, something you can get at on a property once you own it.
When people think of credit lines, they think of initial equity credit lines at a low rate once there is equity in the property, and something as related to as a second mortgage.
“You can get these credit lines BEFORE you have a property. Use like cash, while you can get a tax benefit.”
You’ll be amazed to learn that modern 2020 means the traditional equity lines now offer you no tax write off. Here you can get a credit line based on you, not a property. The tax benefits (check with your tax professional) here are based on a different initiative, investment risk and returns. You also may have a property write down in the event you have an appraisal come in at lower values, and again, verify with your tax and real estate professionals. This would occur in a two year period, only if it made sense where you have not sold the asset yet, nor paid off your credit line in the same time-frame AND the market became in a down turn.
Broker Offers To Clients
In 2019 This Broker Offered 20 Clients a Credit Line. 17 of them received a credit line in the upswings of $20,000 as an average, each. While those 17 clients also received an additional $5,000 credit line credit card, bringing their average total of $25,000 each . You can also add that these $5,000 additional cards, can be benefiting these 17 clients as monies they can use to bring forward as repairs for Investment Property Repairs. Throughout their clients investment portfolios, clients can use these funds for purchase and / or refinancing.
Credit Lines have their individual risk assessments and rates and terms are unique to the individual.
A NO Non Sense Approach.
Using Other People's Money, or, 'OPM' as it is commonly known as, to make an asset a high performing one makes sense. Investors approve individuals based on credit score OR Income. Having a $50,000 credit line not tied to a property has its benefits... The $50,000 credit line can be utilized as same as cash where you have down payment for a property and have funds for initial repairs to the property. Works perfectly with fix n flips, as you will be getting funds to do the repairs, you get those re-imbursed to you as you complete the repairs in stages of completion. You must pay for the materials at the very least, and this $5,000 additional credit card provided can be used for that.
Example of how credit lines can help you in a fix n flip project.
Present Property Value : $ 400,000
Repairs Needed : $100,000
AFTER REPAIRED VALUE : $ 600,000
Rents can be raised at current market value, which makes the numbers very attractive.
Looking at a schedule of repairs that will be performed, lets start with the simplest repairs to be performed during the very first stages.
Utilizing a $5,000 card as your first initial materials needed for the first phase of your repairs to begin.
You may get the typical first goal, is to get to 50% completion of the repairs in the project. To first get there, we need to have repairs in stages, get re-imbursed along the way. Example: Kitchen, bathrooms, flooring, appliances remodeled and add in new garage doors with complete painting / energy efficient windows, these are phases that will get funds released as the work is completed. Common in fix n flips.
Get To The AFTER, Faster.
Getting Credit Lines Or Property Financing, while work is being performed, can be achieved because first goal is to get your property to 50% completed, and then to 80% completion. Here you may acquire two seperate financing loans to accomplish this goal and it is also an industry trend...
Finance the repairs ramp up, with short term financing where we go above current market value.
The simple goal is to get to fifty percent completion in the renovations to the property.
Then acquire favorable loan terms for another extended short term, or long term financing.
The goal here is to identify if this is a buy and hold, or a fix and flip (sell). Then we identify a three year mortgage term or a 30 year mortgage term.
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