We just received a question from a newer real estate investor surrounding “Guidance Lines of Credit”. Their branch banker recommended that they explore getting a Guidance Line for their real estate investment business. A Guidance Line is simply a “Pre-Qualified” (notice I didn’t say “Pre-Approved”) facility up to a certain limit and under certain criteria where a bank will provide financing for a business’s purchases. In this case, they would be funding the customer’s real estate purchases.
With a guidance line, the customer would find a property and then go to the bank with a request to draw on the line to fund the purchase of the property. The bank would reserve the right to approve each draw request, but it does allow for a business to quickly move on a purchase.
Here’s the only issue with banks and real estate investment-related guidance lines. Many, if not most, banks have a serious aversion to funding smaller real estate investment. As a matter of fact, many banks have it written in their credit policy manuals that smaller real estate investors are “undesirable”. I’m not saying it’s right. I’m just stating a fact.
There is good news. Although banks struggle to fund facilities for real estate investors, there are lenders out there that will. One of the perks of being an Executive or Private Client member of the Institute is that we will introduce you to some of those lenders and, for our Private Client members, we’ll work with them to prepare the appropriate applications.
Guidance lines can be a great way to fund your real estate business. You just need to know where to look.