3 Tips to Use Business Credit for Investing in Real Estate
and so if you use business credit along with hard money loans you can leverage that to buy real estate this is the power couple business credit hard money loans the power couple of using other people's money to build your wealth i love it this is the conversation that i love to have one of the things i talk about on this channel is leveraging hard money loans to buy real estate using hard money loans to buy real estate hard money loans make your life really really easy but the reality is you still need to come to the table with some cash depending on the market and i've talked about this on the channel depending on the market you need about fifty thousand dollars liquid to actually leverage hard money loans right and so you can i'll put the link to that video wherever so you can calculate how much money you need but i invest in Philly and so Philly or market like you need fifty thousand dollars fifty thousand dollars is a lot of money or if you can use this calculator it might be a hundred thousand dollars in your area and it's just a lot of money to have liquid so what's your solution you can use business credit business credit is my jimmy jam right so business credit this is like not even difficult to get but if you get it there are three really important things you need to know about business credit so before we get into this i need you to subscribe to this channel because i got hundreds of videos for you literally hundreds of real estate videos for you subscribe to this channel and i have a goodie for you it is an amazing goodie so as we go through this video there are some calculations you're going to need to run some numerical calculations and i have the spreadsheet for you for those calculations so i want you to download these a spreadsheet so you can get access to so you can run your calculation based on your market and based on the things that you're going to do in real estate with your money and your business credit all right so let's get into these three important things that you need to know so first things first if you have checked out my business credit video and actually secured a line of credit or a business loan you use the tools that i gave you and secured this business alone first thing you need to know is you really need to massage the relationship with the bank right getting the approval it doesn't stop there you want to continue on that relationship even after you have that approval and you've actually maxed out that line of credit you need to massage the relationship why do you need to massage the relationship because typically banks that are doing business loans they also have real estate products that they sometimes will extend to more seasoned investors so you need to massage that relationship so that when you are ready to get those bigger loans when you are ready to get some of that cheaper money from the bank they know exactly who you are you've developed that relationship you know about their kids you know about all the things going on in their life and i'm telling you it makes the approval process easier here's another reason why you want to massage that relationship for those more uh attractive real estate loans that they give to seasoned investors chances are if you're starting out a new relationship or if you're starting out investing in real estate um if you have a brand new business the bank they don't really like to extend lines of credit to new real estate businesses so you might actually be getting that line of credit with one of your other llc's or a management company management what business management sure right it's a new llcs i'll be doing business management right so you might actually have gotten the line of credit for that and then you're gonna make a loan from that business to your real estate llc once you get that line of credit you're gonna make a loan and document the loan right we've talked about that on this channel as well and then use your with your real estate llc with the new loan that it got from your other business to invest in real estate so what does that mean that means the bank doesn't necessarily know that you're a real estate investor they know you're in business management sector right so you're not going to actually tell them hey i know i told y'all that i have a business uh management business and i mean technically you are on business management like you want to make sure that you actually are like we're not lying to the bank right but you want to tell them this right they already know that you have this business management business but and you're using those funds for that business management business and so we're not going to say hey i'm not really doing that but you also want to say like hey i have another real estate business over here so when they know you have this other real estate business and you're actually an investor like hey i got this business i got this business i'm a bomb business person i also do real estate and they're like oh you know what since we trust you since you're making do on this loan that we've extended to you like you're doing good by it we also have some other products and chances are sometimes those other products are bigger products for bigger deals but you don't want any issues when you do need that money when you are ready when you have graduated in your real estate investing to actually go ahead and secure those bigger lines of credit it's important to massage those relationships even after you've gotten the approval okay the second thing is really important you need to have a plan for the money the plan is not just investing in real estate you need to have a plan for the money but before you have a plan you need to understand your exit strategy also coupling it with the type of product that you're getting from the bank let me simplify that for you short-term money from the bank needs to be done with short-term real estate investing ventures long-term money from the bank you can do that with long-term investing okay i'll give you an example of someone who does not follow this rule if you get a line of credit typically lines of credit have a maturity of three five years sometimes two years i have a line of credit or two that are just two years the maturity date right so if let's say it's fifty thousand dollars the service the debt service on that is going to be relatively large so hey we're gonna give you a lot of credit for fifty thousand dollars and we want you to pay back in two years sometimes as interest only even if it's interest only the debt service on that is going to be relatively large maybe 500 bucks 400 bucks something like that right depending on the interest rate depending on your bank everything but let's say it's 500 bucks you don't want to take a line of credit max it out your let's say your your your service on that is 500 keeping it very simple it's a two-year maturity so you've got to pay it back in two years and you use that to purchase a turnkey rental property so you use that get a mortgage to put down payment use that for the down payment you get a mortgage for a turnkey rental you're not going to be cash flowing on this property at all because that debt service on the line of credit is too high so you need to have short term plans for that a perfect real estate strategy for the short term money is if you were to have uh let's say you're doing it for a rehab right you are using it to leverage it with hard money when you go to refinance and when you cash out and pay it back the game change everything right so you want to make sure that you're coupling short-term investing strategies with short-term business loans now what are some examples of long-term money something that's like 10 years sometimes the bank do 10 years loans if you have an sba loan they go out 30 years i have an sba loan you can use that money to buy turnkeys i know we romanticized this whole idea of rehabbing but let's keep it at being let's keep it 100 for those of you who don't know let's keep it a hundred percent honest we haven't been stressful so if you can get short long term money right 30-year money the debt service on that is gonna be really really low the interest rate is usually really really low as well 30-year unsecured money your debt service on 50 grand for 30 years is uh maybe a hundred dollars i don't know it's like really really a little bit of money it's not a lot of money okay you take that and then you use that as your down payment on a turnkey property and then your cash flow let's say your cash flowing i don't know six hundred dollars a month five hundred dollars a month on that and your debt service is only a hundred dollars can't beat that with a bag right so you want to make sure short time short term long term long term right short term real uh real estate investment investing strategy with short term business credit long term real estate investment strategy long-term business credit got it got it okay here is the third tip this is really important you need to make sure if you are going to let's say use the short term strategy short term money to rehab a property refinance it for burn repeat do all that stuff run it all everything right then you plan to pay it back you need to make sure that you have enough money to service the debt not just on the hard money loan but also on the business credit so you're going to need to borrow a little bit more than the actual funds that are needed for the rehab and the acquisition of the property so this is where the spreadsheet comes in you're going to download this spreadsheet and we're going to hop right over to the computer right now and i'm going to show you how to calculate how much money you need based on the types of property in your area so we're going to start out with let's say you live in nevada and let's say the average arvs are whatever the number is we're going to take that number of the average arvs in your area and we're going to use that to figure out how much business credit you're going to need to get approved for to be able to get busy in nevada right right well las vegas like we have to like narrow down a little bit more so let's hop right on over to the camp era and i want you to download this spreadsheet please please please don't forget download the spreadsheet okay let's go with the computer okay you're gonna really have to put your thinking caps on for this but when you do you're going to be like this spreadsheet is everything it's everything it's so bomb it's so simple but it's obama so i'm such a nerd i can't wait to bring this down to you okay so um i have this top part of this spreadsheet i hope you remember i showed it to you when i showed you how to calculate the amount of money you need to bring to a closing table if you're leveraging hard money like if you're doing a hard money loan how are you going to calculate how much money you're going to need to bring to the closing table right and um i'll link that video down below because it's super valuable video and i think this spreadsheet is there's a version of this spreadsheet in there but this takes it a next step further so this is so hot fire flames okay so what we're going to do is use this spreadsheet to calculate a general idea how much business credit we're going to need in order to buy a property even if we don't have a property in our a property under contract or property in mind is based on some general generalizations in your particular area in your city or your state and it'll help you to figure out how much business credit you're going to need in order to pay for your rehab go to closing pay for your rehab and then also service the debt on your hard money loan and on the business loan okay all right so let's just walk straight through this so let's say for instance you're in a city where the arv is 200 000 right so what we did in this top part of the spreadsheet again this part is not new let's say for instance we're looking for properties where the arvs are 200 000 we're looking to acquire a property at 50 000. we're going to assume we're going to put 80 000 into the property these are some very rough numbers but again you don't have to have a hard property you just have to have some generalizations about the area in the property so for this example the arv is 200 000 the acquisition is 50. you're going to put in about 80 000 which is not so far-fetched in philly and you're going to be all in just for your acquisition and your rehab calls for 130 000. so down here we said what type of deal is this it's a 65 rule deal right we have lenders that will give you 100 of your acquisition and your rehab calls up to 65 of the arv so we did the math here it's super simple we did the math here and did that you can change these numbers here right and it'll calculate to tell you the type of deal that it is okay if you were to go in this is really important if you were to go in over 65 percent based on this type of lender that we have you'll have to bring that difference to the closing table so let's say the rehab on this property is going to be a hundred thousand i don't know if you notice a change a lot of stuff over here but mainly this one this number right here went from zero to fifteen thousand and so this is the difference that you wanna have to bring to the table again this lesson is not for this if you really want the refresher go watch that video below but let me change this back to 80 000 to keep it super simple okay all right so in this next section this allocation how are you actually going to make this whole thing work so we're assuming that we're going to do five draws right remember the harmony lender is not going you have to front your first draw and then after you prove that you did the work they're going to give you that money back and you kind of recycle the money so your first draw is twenty percent of the re twenty percent of rehab because you're gonna do five draws right and so twenty six thousand this is twenty six thousand twenty percent of this rehab budget okay so you're gonna need to front your first draw you're going to need closing costs five percent estimate i've rounded up pennsylvania closing costs are a transfer tax is insane okay it is what it is and i put for the closing costs over here this is just a reference guy on this of these last two columns what is closing calls your title insurance and your transfer tax okay so this just drops down here this closing costs what do i mean by title insurance and transfer tax six months of your interest payments on your hard money loan let's say you have 12 which is kind of standard it's high but a standard right now so 12 of the loan is going to be you're going to need 7 800. they always charge you points on the front end not always but a lot of hard money lenders charge you points on the front end what is one point is one percent of the loan so we calculated it here 1300 other holding calls let's say your taxes utilities insurance other holding calls thirty nine hundred dollars miscellaneous we just said a five percent estimate of miscellaneous sixty five hundred dollars so we totaled it all out this is what you're gonna need to bring to the table if you want to you if you want to have put to the side all of your entrance payments for your hard money loan your holding costs miscellaneous your hard money loan points you're going to need for this particular deal 48 000. now you see how we're making generalizations based off of the arv and kind of knowing where we're going to be acquiring properties and rehabbing them at so on and so forth okay all right don't worry about this down here this is from that old spreadsheet but what i what i really wanted you to know you don't really have to worry about for the purpose of this but let's just take you through it what i wanted you to know here is for a rough understanding of how much you need to bring to the table what percentage of the arv right so it's 48 000 if you know that you're going to be invested in an area of 200 000 like that's what the arvs are going to be what percentage of this is about 24 so you can look and say what are the arvs in the area that i want to invest in if i'm going to rehab a property i need to be liquid about 24 25 of the arv or you can say it's about 37 of the rehab and acquisition that's what these two numbers mean down here right i'm going back and forth that's what these two numbers mean down here this is just rough estimate so you can calculate hey how about how much so if you look in your area and you're in an area where the arvs are 500 000 just plug and play these numbers in and then look down here and that'll help you to be like okay that's what i need to bring to the table so we've established that if you're in a market like philadelphia you need to start out with about 48 grand 50 grand so this is where it really gets magical this is already magical up here but it really really gets magical down here i have highlighted this um like this peachy color red you really couldn't see it it was too intense but i'm going to pretend like this is red it's like peach you don't have to do anything with this because this is going to bring this number from over here right you don't have to do anything with this so let's say you're saying hey i need to come up with 48 thousand dollars that's what this spreadsheet the top part that's where she says i need to come up with 48 000 where do i come up with it right you can get business loans now this is the part that no one's telling you right business loans you're going to have to figure out how to service the debt it's great to get business loans or even personal loans but you got to figure out how to service the debt period point blank but this spreadsheet is telling you what you need to get to service all the debt okay so let's say you find a great business loan at five percent your loan maturity is three years right so long journey in months is three years so on a loan like this again i probably should make this peach because i don't want you let's make a peach anyway i don't just don't edit this okay it's the cell just don't mess with this cell at all the green means you can edit it it's going to calculate for you this is an amortization calculator it's going to automatically calculate for you what your debt services your monthly payment on a 48 000 loan is okay six months right let's say you in and out of this project in six months six months of debt service we match it up here because your hard money loan interest payment you're gonna have is six months too so six months of debt service is 8 600 86 31 and 62 cents to be exact so the total business credit that you're going to need to service all your debt so you're for real for real in and out of this project with no money out of pocket it's 56 000 56 000 now let me just say this i will round this up to 60 because this is not considering the actual uh debt on the whole entire loan right so if you're borrowing 60 so you're gonna borrow a little bit more than the 48 so you're about 56 you're gonna borrow a little bit more than 48 so that's driving your money monthly interest payment up but that's okay pat it borrow 60 just round it up a couple dollars and you'll be good you if you borrow 56 000 you get lines of credit here there you know credit cards so on and so forth and these interest rates are right like if you get a credit card the interest rate will probably be much higher but if you get if you get business loans around these numbers and you end up getting that you for real for will be in a deal with zero money out of your own pocket let's adjust this i i want to see i want you to see how sensitive this is let's say the rate is 5 so let's say for instance a lot of times when you get a business loan they'll say prime plus 3 or prime plus 2 if it's like prime plus three you're gonna be looking at seven or eight percent right so let's say you get seven percent right and you ask them what the maturity date on this is is two months i mean two years 24 months okay that drastically changes your numbers you gotta buy borrow a whole darn near four thousand dollars more or it is four thousand dollars more right let's say for instance your hard money loan uh but you're gonna have to actually go into the cell let's say your harmony loan is not at twelve percent i said ten percent changes your totals business credit needed but then this this is also another thing i want you to see like people be tripping off of 12 you just shaved off 2 and it didn't really make that much of a difference let's say you're fancy and you get it at eight percent three thousand dollars is a couple pair of shoes you know i love shoes and a couple hundred books but this isn't the hair north there you know i love choosing books but that's neither here nor there let me put this back because i am going to actually publish this right for you guys just the way it is and you can go ahead and mess around with this um let's say for instance that your arv is let's say you do end up putting out a hundred thousand dollars oh let's say you do go over to 65 and it's not eighty thousand dollars a hundred thousand dollars on the rehab yikes that changes your total business credit to a lot you need a lot more money but that's cool you're just going to borrow it all and then they're going to pay their own interest right let's take this back to 80 000 and i want to show you one other variable that you can edit on this spreadsheet let's say that you're in this project for a year you're gonna have to change this to two places it changes at two places um you're gonna have to change that 6 that was there to 12 right so that changes that and then you're also going to have to change your monthly interests i i recommend that you just don't mess around with this thing thing but it's all good um you're gonna have to change this to 12.
look at the difference if you're in a project for six months versus if you're in a project for 12 months big deal this is making me reminded me about all the money i've wasted lingering around my projects all right we're not gonna feel bad about ourselves today now are we no we're not okay let's change that back to six and um yeah that's how that goes so i'll put it back at 5 and 36 and so this is what i want you to see is play around with this based on your area and the type of projects that you're looking at and then um this gives you leveraging and knowledge power when you go to get your business loans when you go to shop around and talk to some of these people and um as well as hard money loans too and like but keep in mind if you can't get the numbers that you want you're a brand new investor you can't get the numbers that you want just you have to do this with so much discipline right keep in mind that you can always just borrow more money to pay for the interest you have to do this with discipline if this is where you're what you're going to do the way you're going to do it right some of you are fortunate you don't have to use business credit and maybe you just scared of debt and that's okay some of us didn't have a choice it's either borrow or work forever right no we get that we had to do what we got to do and it's worked out really well for some of us and again i'm not telling you what to do or what not to do you just have to know what's best for your situation and also know what's best for your beliefs right some people are just really uncomfortable borrowing lots lots of money and they also have like rich families that give them interest free loans or just give them money that's also a thing my son is gonna inherit a lot of stuff he's not gonna i'm trying to put him in a position he's not gonna have to worry about any of this but i'm gonna do this so that he doesn't have to worry about it and so no way is wrong way i just want you to know that okay all right again download this spreadsheet if you watch this and you don't download this spreadsheet you are all the way out of your mind if this went over your head just go back and watch it again it's okay you'll be like oh it's going to make so much more sense if you watch this it's like the perfect spreadsheet i've never created a more perfect spreadsheet actually i have but that's another time for another day this is just a perfect spreadsheet okay i love y'all i want y'all to have an amazing day subscribe to this channel download this spreadsheet and make a bunch of money alright bye
2022-02-01 01:50
