Expert InvestorsFix and Flip

Advantages of a Line of Credit for Real Estate Investors

Advantages of a Line of Credit for Real Estate Investors

Residential real estate investors need several things to succeed. Among the biggest:

1. They need a strategy for finding properties that they can flip, lots where they can build, and/or homes they can add to their portfolios as rentals
2. They need a reliable team of contractors, handymen, property managers, inspectors, insurance agents, real estate agents, attorneys, and more
3. They need a reliable source of financing for whatever deals come their way, with borrower-friendly terms for fix-and-flip loans, rental loans, or build-to-rent BRRRR strategies
4. They need to be able to move quickly, especially in today’s market with tight inventory

Item #4 is vital. If an investor can’t move quickly, then he or she will lose deals that would have resulted in significant profits. The good news is that the need for speed can be aided by success with the first three items.

For example, an investor with a trustworthy team will be able to mobilize quickly to assess a property and run the numbers to see if it is worth an investment. Likewise, an investor with property sources that continually provide opportunities will develop systems to move quickly for the right purchases.

Likewise, choosing the right lender to finance real estate investments will create speed. Often, investors think about this in terms of efficient underwriting and quick closes, which are important. But have you thought about the other things a lender can do to provide speed?

One of the new initiatives Lima One Capital has launched in 2020 is a Line of Credit process designed to maximize speed for our borrowers. Instead of gathering borrower information with every loan, we underwrite the borrower once and then certify a total amount of financing that the borrower can access from Lima One over the next six months.

The great news is that this does not add any time to the underwriting process on the first loan, and it significantly increases speed for subsequent loans over the next six months, because we are underwriting the property—whether for loan to value on a flip or construction process, or for debt service coverage on a rental.

The process to recertify a Line of Credit every six months are also easy on the borrower and designed for speed.

In addition, a borrower who doesn’t have a specific deal in view can still complete the line of credit process, so they work ahead and then be ready to pounce when their strategy for finding properties unveils the next great opportunity.

Here are five of the specific advantages that a line of credit like the one Lima One offers can benefit residential real estate investors.

Eliminating Uncertainty

Investors need to have solid sources of funding from lenders who won’t re-trade their loans right before closing. Having a line of credit in place provides certainty about how much you can borrow, so that you can focus on making the numbers work on each individual property deal.

Refining Your Property Box

When an investor knows how much he or she can borrow, then it’s easy to refine the property box that they’re looking for. With an approved $1.5 million in runway through the line of credit, the investor can choose whether to purchase a portfolio six quarter-million dollar rentals, build two $750,000 properties, or finance the value-add rehab on a small multifamily property. The certainty of financing provides the investor hyper-focus, which lets them identify the right deals more easily, while still providing the flexibility to choose the optimal investment strategy for their situation.

Empowering Quick Offers

When an investor knows exactly how much financing he or she has access to, then the investor can pounce when the right property hits their radar. The investor can feel confident offering $400,000 for a purchase when he or she knows that a lender like Lima One will lend them up to $500,000 as long as the numbers work on the property. Plus, with a line in place, the investors will have instant proof of funds that make their offers more attractive. This ability to move quickly gives the investor a major advantage in a tight inventory market.

Generating Quicker Closes

Another major advantage of being pre-approved as a borrower is that the amount of underwriting on each deal is minimized because the investor is already underwritten as a borrower. The result of this is quicker closes. For example, Lima One has recently executed closes in eight business days on a FixNFlip loan and 12 business days on a New Construction loan. By focusing our efforts on the property, we’re able to gain efficiencies and provide even more efficient underwriting, thus allowing for quick closes that serve investors.

Scaling the investment

The biggest advantage of a line of credit is that it helps investors continue to scale their investment portfolios with approved deals. As you pay off FixNFlip or New Construction deals under your Lima One line of credit, you get access to your line of credit preapproval runway again, while also benefitting from the rate and term benefits that Lima One can offer more experienced investors with a history of proven success. This becomes another tool for investors looking to scale their business.

If you’d like more information on how to apply for a line of credit from Lima One, complete this form. The process is simple and quick, and will set you up for more and more investment success.