By Fred Matera, CIO, Redwood Trust A lack of affordability will lead to near-term weakness,…
Three Creative Ways Investors Can Use Real Estate Credit Lines
by Ian Hardcastle, Relationship Manager
Investing in real estate is a numbers game. The more transactions you complete successfully, the more money you make. The more money you make, the more you can invest. The more relationships you develop, the more opportunities can present themselves. It may seem very straightforward, but, growing your business and increasing your numbers cannot always be done “by the book”. Sometimes an investor must get creative with the tools and relationships available to achieve maximum results.
Here are a few ways you can get creative with a CoreVest real estate investment credit line to increase your numbers and your profits:
1. Bridge Financing for Rental Aggregation
CoreVest credit lines are not for the sole purpose of financing fix and flip transactions. Perhaps one of the most effective and creative ways our lines can be utilized is by drawing on it for soon to be rental assets that need some stabilization. The line serves as the perfect bridge instrument to allow for a speedy acquisition of distressed assets while giving you the flexibility to contribute to repairs, lease up and even gather a sample size of renter performance once the property is stabilized. Investors can choose to sell assets that do not meet their desired performance metrics and refinance performing ones into a CoreVest rental portfolio loan with longer terms.
One thing to note about outlying assets in an acquired portfolio that do not fit inside the investor’s box –there is no prepay or minimum hold time with CoreVest lines. Investors can decide to immediately resell the “dogs” of their recently acquired portfolio with no monetary penalty for doing so.
The cost of capital when using a line of credit to purchase rentals will also be significantly reduced when the properties are ultimately refinanced into a CoreVest rental portfolio loan product. Often, the interest rate and draws fees can see a significant discount when a line is set up for the sole purpose of acquiring rental homes. The lender typically can mitigate against the interest and fee reduction by adding in an exit fee that will only be applied should the bridge asset not be refinanced into a CoreVest rental portfolio loan product.
2.) Quick Flips at a Margin of the Cost
As noted above, investors are not held to minimum terms and prepayment penalties when financing properties on a CoreVest credit line. Typical short-term hard money lenders will have a prepay penalty for properties that do not remain with them for the minimum term. At CoreVest, an investor only pays the pro-rated interest for the period the assets are held on the line. For example, if your draw is held on the line for two months, only the amount of prorated interest payments on two months is due. This means you would only pay a fraction (1/6 in this case) of the annual interest rate. No minimum terms can be hugely beneficial for short-term fix and flips and quickly turned transactions.
The flexibility allows investors to become more creative with their acquisitions. They can quickly secure assets and even reassign the properties weeks after close with minimal interest costs. Timing is everything when investing in real estate. With the elimination of any prepay or minimum terms, borrowers can lock down properties and get creative with their exit strategy once properties are acquired.
3.) Leverage Buying Power with Proof of Funds
CoreVest completes a one-time underwrite and approval of a borrower prior to any funding taking place. Once approved, the borrower is essentially pre-approved for their allotted credit facility for the next twelve months. The underwrite includes a review of financials including net worth and liquidity levels of the borrower. The line of credit can enable a borrower to multiply their liquidity by five times that of current levels. This increase in liquid will also increase purchasing power by five times.
Investors can get creative and utilize this added liquidity to secure cash intensive purchases such as REO and auction properties. CoreVest will provide a proof of funds (POF) letter that can be used when locking properties into contract. The POF can help secure the property, the borrowers can purchase in cash, and then quickly refinance out within five days of the auction purchase to recapitalize and continue acquiring.
The POF will also be useful when negotiating the purchase of standard MLS listings, REO sales and other distressed assets. The POF is often worth its weight in gold. Sellers can rest easy when a CoreVest proof of funds letter is provided knowing that the buyer is truly liquid and can execute a speedy closing. When a seller is presented with an offer backed by a million-dollar-plus CoreVest credit facility and one that is not, the choice is clear.
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how Corevest can help grow your rental and rehab business, please call Ian Hardcastle at 310.340.7078 or email email@example.com