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    4 Replies Latest reply on Dec 29, 2011 1:10 PM by Erik Salmon

    Obtaining 1 Million Dollars for Real Estate business

    REBiz Adventurer

      Hello.  I currently have assets on hand and want to start a business involving Real Estate.  I have excellent personal credit with high limits and top scores.

       

      Real estate as you know for decent properties is quite pricey for acquisition and there are loads of parcels across the country for sale in various locales from various players.

       

      My issue right now is financing the business and getting to the point of being able to reach a 1 Million USD credit line at a bare minimum with non personally guaranteed credit.  There isn't much if anything I can do with much lower credit lines in the real estate market considering salaries, materials, and properties and the like is quite pricey and even 1 Million USD will just be a start. 

       

      It may take a little time to get financing going for the business but just like personal credit, business credit needs to be worked on.  The problem is that I need high credit lines to fund the business since lower amounts will just serve to establish basic foundations without any acquisition of real estate. 

       

      I am just looking for a general discussion, not a recommendation of anyone marketting business services or lenders at this time.

       

      I have been peddled for a Bank Of America business credit card before and perhaps others as I opted out of credit card solicitations from all credit issuers.  But from what I have heard those cards require personal guarantees which I am not willing to give. 

       

      I am all too familiar with credit card funding as being the basis of the easiest to get funding with the best rates for those with high FICO Scores including very low rate offerings far below other loan offering mechanisms for yearly revolving cycles with transferability.

       

      My business plan will focus on property acquisition of real estate with specific criteria, which will lead to profit maximization in situations where valuations of existing properties can be unlocked to huge potential and be a huge benefit to the economy especially in this down real estate market as there are loads of ways to unlock the valuations of properties in the USA and around the globe. 

       

      If my business plan succeeds I expect to be hiring lots of employees and hopefully be a firm with a very high growth rate that will succeed over the long haul as we approach the next great business cycle.

       

      So to sum up what I am looking for here:

       

      I realize establishing business credit takes time and so it could take up to 2 years to potentially establish this business and am fully aware of the players in the business credit scoring industry without using a personal guarantee. 

       

      Apparently, from what I have heard, the SBA loans specifically exclude investor real estate from loans they would underwrite and so from what I can tell, it doesn't look like I would be able to nor should be using governmental loans to finance the business but rather loans provided from the private sector. 

       

      So really Im looking for what would be the best method or approach to obtaining substantial business credit without personal guarantees as an entrepreneur who needs to get started but also knows he needs very significant funding in order to get started.

       

      An example:

       

      Property acquisition before added capital improvements, labor costs, and so on and so forth on one property could come out at $700,000.  There won't be anything I can do on a small business line of credit in order to generate cash flow for the business which will need a minimum of 1 million USD Financing to even have a shot at producing cash flow and will likely be in the red for the short term.  However the risk/reward ratio and upside potential is extremely high. 

       

      I have launched preliminary inquiries with institutions.  The small business credit cards without nearly enough funding provided would have to be based on my personal credit for establishing accounts at this time. 

       

      And yes I realize one can establish trade accounts with various vendors before obtaining merchant accounts however I have heard that these firms have cut back acceptance and I really don't want to buy anything right now till I know I have the funding I will need to even take the risk. 

        • Re: Obtaining 1 Million Dollars for Real Estate business
          CorpCons08 Ranger

          I'm going to be completely honest here and say, traditional financing is probably not going to be an option for you. From what I have read, you want to obtain a business line of credit for $1MM or more out of thin air, without having a successful business history showing lots of profits, and without having to use your personal credit and assets as collateral for the loan. Traditional Financing Institutions are going to laugh at the application.

           

          You may want to try obtaining this type of financing through an angel investor. They may have issues with you not using your personal credit and assets as collateral for the loan too, but they are going to be a lot less guidelines strict as a traditional financing institution.

           

          Regards,

           

          Dan

            • Re: Obtaining 1 Million Dollars for Real Estate business
              REBiz Adventurer

              As you or anyone know, it takes money and resources to get things accomplished and other players have indeed gotten started and have made their success already and have successfully raised or are raising capital in various industries across the world, too numerous to mention.  Just look at the wide array of businesses around the world in various stages of financing with so many different variations.

               

              Thanks.

                • Re: Obtaining 1 Million Dollars for Real Estate business
                  REBiz Adventurer

                  Some points about angel investors:  I doubt they will finance any business without showing positive cash flow and have active experience in the field.  So most likely the angel investor as well as traditional bank financing could be dead ends and that is assuming due dilligence was done since there are a lot of dishonest folks out in the marketplace.

                   

                  Banks will give out credit easily for those who have paid their bills on time but only very small lines of credit which are personal backed.

                   

                  By forming a business and establishing trend lines with accounts, it seems like it would be 2 years or less before any credit was granted under business credit, however they also will want financials and need to show positive cash flow.

                   

                  In Real estate, the problem is initial capital costs for just the usable properties alone that could be used to profit on, is going to cost significant sums of money and the business model involves more expenses than operating on a shoestring budget out of someone's garage since the business model itself is focused on real estate acquisition where the valuations of the properties that need to be acquired are significant.

                   

                  There is also the small business funding program thru the Treasury which is focused on doing business to lower income areas which has been a program that has been an absolute failure.

              • Re: Obtaining 1 Million Dollars for Real Estate business
                Erik Salmon Scout

                Hi REBiz,

                 

                You are going to have to build up your business credit profile over time, build out a portfolio of real estate deals, and have enough cash flow to debt service that kind of credit line before traditional lending will even look at your company. Hard money lenders are going to be your best bet if you do not have all the cash you need for your first real estate deals. There are things you can do with alternative funding but it all depends on what kind of real estate deals you’re trying to do.

                 

                You may also want to look at creating a funding plan that includes a combination of types of funding strategies so that your business is not dependent on one type of financing. A funding plan may include a personal line of credit if you have good credit, a home equity line of credit or cash out refi, personal credit cards, if your corporation is setup with a good credit profile you could also obtain a commercial account at Lowes and home depot to finance rehab supplies if your flipping properties. Again look at all your options and formulate a funding plan that makes the most since for your company.

                 

                Bottom line you are not going to get $1M right out of the gate and you are going to have to have some skin in the game before anyone will take a risk on your buisness, especial in a high risk industry such as real estate.

                 

                Regards,

                 

                Erik Salmon, CCFC