Investment Property Lines of Credit for Fixing and Flipping Commercial and Multifamily Properties

Investment Property Lines of Credit for the Acquisition, Rehabilitation and Resale of Multifamily and Commercial Developments 

If you're an investor with a lot of equity built up in your current investment properties, and you want to start fixing and flipping new properties, an investment property line of credit (LOC), might be the perfect way to get started. Much like Home Equity Lines of Credit (HELOCS), investment property lines of credit operate much like credit cards, allowing a borrower to take out as much or as little as they want, up to the LOCs specified credit limit. 

Single Investment Property LOCs vs. Portfolio Lines of Credit 

There are two major kinds of LOCs, individual investment property LOCs, and LOCs for portfolios of properties. Just like HELOCs, individual property LOCs typically have a 10-year, interest-only draw period, followed by a 20-year repayment period. In comparison, portfolio LOCs typically have terms of between 18 and 24 months. Portfolio-based LOCs are also much more difficult to qualify for, often requiring credit scores of 700+, and are usually intended for experienced investors that want to borrow more than $1 million against their property(s). In most cases, portfolio LOC borrowers will need to have completed at least 2-3 successful projects in the past in order to qualify. 

Investment Property Lines of Credit and Hard Money Loans

Just like with HELOCs, some investors may use the funds they get from LOCs as a downpayment for a hard money loan, which they can use to finance their fix and flip transaction. This can give an investor a lot more leverage-- but also adds significantly to their risk. For example, if the investor's fix and flip transaction doesn't go as intended, or if property values fall, they could be left with two loans to pay back-- and little funds with which to do so. 



    Sample Terms For Fix and Flip Investment Property Lines of Credit

    Size:  

    • Single Property LOCs:  Typically less than $1 million 
    • Portfolio LOCs: Typically between $1 million and $50 million 

    Term:  

    • Single Property LOCs:  Typically have a 10 year interest-only draw period, followed by a 20 year repayment period
    • Portfolio LOCs: Typically have 18-24 month terms

    Maximum LTV/Leverage:  

    • Single Property LOCs:  Up to 60% LTV  
    • Portfolio LOCs: Up to 75% LTV 

    Interest Rate: 

    • Single Property LOCs:  Typically based on Prime Rate + 1% (varies by size, larger LOCs are less expensive) 
    • Portfolio LOCs: Typically between 5 and 8% 

    Closing Costs:  1.00 - 5.00% (for single property LOCs) 

    Credit Requirement:  

    • Single Property LOCs:  660+ 
    • Portfolio LOCs:  700+ 

    Debt-to-Income (DTI) Ratio: 45% or less (for single property LOCs) 

    Remaining Equity Requirement: 

    • Single Property LOCs:  10- 20% 
    • Portfolio LOCs:  20% (may be less if other assets are used as collateral) 

    Eligible Properties: 

    • Single Property LOCs:  Single family homes, properties with 1-5+ units 
    • Portfolio LOCs:  Single family homes (typically very large), and properties with 1-20 units 

    Timing:  Investment property LOCs typically close in around 30 days 

    Advantages:

    • Fast closings 
    • Allows investors to re-invest the equity in their current properties elsewhere
    • Funds can be used as the downpayment on a hard money loan  

    Disadvantages: 

    • High credit scores required to qualify 
    • Typically requires at least 20% equity in the property 
    • LOC amount limited by the amount of equity in the property