Why Should Investors Consider a Real Estate Line of Credit?

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11 Jan 2022
5 min read
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The recipe for residential real estate success includes having a sound strategy for finding the right properties, having a reliable team of handymen, contractors, insurance agents, and the like, and having a reliable source of financing. Being a real estate investor can sometimes feel like organized chaos when you’re juggling multiple balls in the air and doing so in a fast-paced market with tight inventory.

That last point is especially important; move too slowly and you might lose a deal. It’s why the option to open a real estate line of credit can be beneficial for those who may not have a specific deal in view but can begin the process of working ahead on their portfolio.

Without prepayment penalties or early exit fees, a line of credit can create a strong foundation for an investor who is looking to expand their purview, making it easier to pull the trigger on deals without the fear of experiencing cold feet or delays. While credit lines used to be primarily obtained based on the equity in properties already owned, they’re now typically based on an investor’s profile and financial wherewithal. In as little as just a few weeks, you can be underwritten and approved as a sponsor based on your demonstrated track record and financial strength.

Let’s explore the specific advantages that a line of credit can afford investors.

Eliminating uncertainty

Having a line of credit provides you with the certainty of knowing exactly how much you can borrow, allowing you to pivot and focus on property deals, projects, and making the numbers work. The line can be drawn upon multiple times, meaning you can invest in multiple properties with the same line of credit. Better still? Mortgage payments are interest only and based on the outstanding loan balance, so you only pay for what you use.

Refining that portfolio

Let’s say you’re approved for $1 million in runway through the line of credit. Suddenly, your options feel greater. Do you want to purchase rentals, fix-and-flip properties, or build two separate $500,000 properties? Or do you want to finance the value-add rehab on a small multifamily property? Ultimately, you do what you think is best and what might enrich your portfolio the most, and that’s the beauty of having a credit line. The certainty of financing will allow you to remain hyper-focused on making the right deals at the right time.

The need for speed

We’ve already touched on it briefly, but another major advantage of being pre-approved as a borrower is the reality that you can close on deals much quicker. The amount of underwriting on each deal is minimized because you are already underwritten as a borrower, thus allowing you to focus on the properties you need to close.

Scale the investment

A typical real estate investor will run out of capital before they run out of buying opportunities. Having a line of credit provides easy access to capital so that you can execute on the deals that will take your business to the next level without worrying about getting approval for your next transaction. With the boundless opportunities many marketplaces offer, aline of credit can afford you the flexibility to optimize your investment strategy.

Ultimately, your goal as an investor will be to diversify and grow your portfolio. The question is what options exist for you to make that a more feasible goal? Real estate lines of credit are an excellent way to reconfigure your investment strategy in a way that feels tangible and real. If you’re ready to explore financing options, contact Temple View Capital to learn more about how we can partner with you.