Is An Unsercured Line Of Credit Being Creative With Closing Costs?
Hey everyone,
I am in the process of getting my first property under contract and I am learning alot while I am moving forward. This is a follow up to a post on being creative with closing costs. I am taking out a 1st at 70% of the sales price which is $575,00 the seller will be holding 20% of the sales prices as a 2nd which totals $172k which makes this a no money down deal! Great ,after all is said and done this will bring in $1,800 positive cash flow. The only thing I left out were the closing fees, you know the title attry, pre-paids etc. I have strong credit but "cash poor" at this time so I lost the wind in my sails pretty quickly when I hit this road block. He refuses to hold any more paper and he is requiring that I come up with this to show some commitment. on my end.He suggested an unsecured line of credit...it sounds good and it does make sense to finance the costs this way. I just feel there has to be a better way. I am taking a chance of lower my FICO by applying for this revolving line? What does everyone think...? Would you say this would still be a "true" no money down deal though I am paying the fees out of pocket or through the line...please respond with your ideas and suggestion. I love this site and the information that is shared.
Another concern is, I don't have a problem lining up motivated sellers and go to 100% w/ positive cash flow, but the closing fees on each deal will be my road block unless I can find a way to get them paid and close deals... 
I think a line of credit is a great way to make up the difference.
Currently I am using a home equity loan, line of credit and three credit cards to buy and renovate a house, using none of my own money.
I have a couple questions about your post.
1. what do you mean by $1800 positive cash flow? Is this per month, or year? Or is this your scheduled rent?
2. Wouldn't your rents pay off your line of credit in a few months?
Also, Why don't you include closing costs in your first mortgage? Finance 62,000, or whatever. With a 70% loan you should have some breathing room. you might even walk away from closing with money iin your pocket.
Good luck
Dan
$1,800 after all expenses is what will go into my pocket monthly once it's fully rented. This profit would pay the line in about 10-12 months. The 1st mtg is going to 70% but don't forget that I will also have a 2nd through the owner that will make this at 100%. The property and area will project to increase about 50% in value in 3-4 years when I decide to sell. So it's a win-win all around. I wouldn't be able to roll the costs in because I am already tapped out at 100% through both mtgs
575k for your first deal!! - I am inspired by this!!!!! Good luck with this deal!
just a correction on my original post- the seller will be holding 30% which makes it a 100% down deal
My thoughts too about the $575 and first deal. My first deal was a $37,500 rent house that i had to pay $500 to close and was scared to death I would find a tenant at $500 per month. You are taking on a lot for your first deal but you seem smart and capable. How sure are you that the property will stay rented and double check your expenses. Smart to ask questions here on this forum. Get the money any way you can. A friend just paid off their home loan that they had no idea how they were going to make the payments 30 years ago. Now she has $5,000,000 in free and clear property and was very conservative.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Thanks Ted- I appreciate the encouragment and it's is very very scary, but the deal makes too much sense for me to not lock it in. If I made a mistake so be it, but I am doing alot of upfront work to make it as painless as www.possible.There are 11 apts and 4 storefronts. Never in a million years would I go after something like this especially with no experience, but this has been a dream for 4 years now and I am willing to pay the price to make a better life for my family and so I can be my own boss in the near future. There is nothing wrong with hard work and busting your tail to get to where you want in your life as long as you are the one calling the shots. I have been working hard for 15 years making my boss's and owners rich, it's time for change and enjoy life! PS- I am overwhelmed and somethings think I am over my head with this deal, but I am not walking away because of fear. I am posting all the specifics on the deal once I have everything spelled out in black and white. Thanks again!
sorry about the mistake on the www. !
Sounds like a really great deal. Borrow sideways non secured and pay your closing costs. You might hit the Atty up for a pay over time. say two years. You then just cover from your incoming surplus cash.
Once more a voice from the back of the Charriot. Do not depend on the increase in property sales price in the two year future. Your deal makes sense in the here and now. Stop there. The rest if it happens it happens if not. Cum Grano Salis.
Cheers Lucius