Another day, another financing idea. The purpose of the Creative Financing in Real Estate Series (101, 102, 103, 104, 105) is to brainstorm methods for us to buy properties. The real estate market is at its top, and every penny we can leverage is invaluable.
Today, we will talk about business credit lines. I do not want to step on the toes of my other article, “Establish Business Credit Now,” so I will attempt to focus more on the real estate side of the house. Please read that article because it is full of juicy details on how to obtain business credit.
In a nutshell, there are three levels of business credit that you will want to work through. They are business credit cards, business lines of credit, and business loans. They will all require that you have a corporation and display good money habits to the bank.
Become a Private Money Lender
So how can we leverage business credit in our pursuit of higher rental income? Well, it depends on the type of properties that you are aiming to buy. According to the book “Zero Down,” which goes into depth about this topic, there are different techniques for each type of business credit.
Business Credit Cards are where you will start your business credit history. You can use these cards for making minimal down payments. In the book, the author says you can probably get your card up to a $100,000 credit limit in a couple of years.
So you can use this to buy a tiny home perhaps. You will need to run the math on anything major purchase and ensure that you can fully cover the debt service with rental income. For example, if you buy a tiny home for $50,000 on a business credit card, ensure you can make the payments from the rents you receive.
However, I wouldn’t want to have a home purchase on my business credit for an extended time. Most people can refinance out of a home and lower the payments—this would be hard to do with a tiny house. Don’t trap yourself in this type of situation.
Think of your business credit as quick liquidity. You find a good deal and need to make a quick move; however, you will need to find a permanent solution in the long term.
How to Leverage Real Estate at Any Age
Business lines of credit. In Creative Financing in Real Estate 105, we talked about hard money loans. Business lines of credit go hand in hand with these loans. Depending on what market you are in, you may be able to purchase a home with your business line of credit. Say you are in a small town, and you can buy a house for $70,000.
As with hard money loans, the idea here is to fix and flip, refinance, and move on to the next home. You do not want to keep your rental on credit with high-interest rates. The good thing about lines of credit versus hard money is that you do not have to interact with anyone on these lines of credit. It does take patience to work your way up to a business line of credit with a bank.
Business loans. The granddaddy of all business credit is business loans. It may take 3-4 years of consistent business performance to reach the level where the bank trusts you. However, once you get this point, you are almost a “made man” or “made woman.”
Why Real Estate is the I.D.E.A.L. Investment
You will present your plan to buy each real estate property as it is its own business. You can show the cash flow and cash-on-cash return. Banks love to lend money to people they trust. Again, it may take 5-7 years to get to this point where you can walk into the bank and walk out with a loan to buy a home or commercial real estate.
However, if you are serious about becoming a real estate mogul, you will need to get big banks on your side. It will be worth the time and effort to work your way up the business credits ranks to diversify your options for each rental property you purchase.
Other business ideas. There are a few more uses for business credit. You can use your different business lines to assist with smaller items as well. If you are a serious real estate investor, having even a small business line of credit will be invaluable.
Minor repairs will come up from time to time. If you have already taken a hard money loan, you do not want to keep coming back for $5,000 to $10,000. Business lines can help you close the gap and also keep your personal expenses separate from the business.
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Renovations. It may be a good idea to fund the purchase of the house through various means. However, you can support the actual home renovations with business credit cards or lines of credit. This way, you are not asking for too much money from a private lender or hard money lender.
Supplies are vital to any project or renovation. There may be times that you underestimate the costs of supplies, and you will have to use some form of liquidity to keep the project moving forward. Business credit will be a godsend in these situations.
Conclusion. Business credit is great to have available to you at all times. Please go back and read the article “Establish Business Credit Now” and the book “Zero Down” to get the particulars on how to leverage business credit to the best of its ability.
Each property you buy will have its own story to tell, and it may not be as cut and dry as it seems. You may have to use a form of private money, hard money, business credit, and personal loans to get the job done. That’s life in the real estate world.
The rising cost of real estate is why I created the Creative Financing in Real Estate series, to help you obtain real estate where others have failed. Real Estate is a fantastic wealth generator because of leverage and taxes. Learn how to get yourself into the game. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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