What the OP states is true. I too, have rental properties with no mortgage. It is difficult to get a loan against a property with no mortgage. It is the most illogical thing ever but it has been confirmed for me by a lender. It has been awhile so I don't recall if the lender said that it could not be done or if it is difficult and I didn't need the money so I didn't press him. It is easier to get a second on a house with a mortage. In my situation, I used my good credit to get a personal line of credit. In a pinch, I would cash advance a credit card.
It seems very illogical!
I will start asking in the mortgage forums and research about the business credit route, which is where I need to be heading anyways. At first, the business credit thing was a no since I had the two baddies and they require a "personal guarantee". But then I started working on my girlfriends credit and she has much better score than me with which to "personally guarantee" any loan the business may need (she is the "VP of finance" now I guess!)
Ayone else have more informatoin about how to proceed? Is it even possible to collateralize a mortgage with a separate property like the poster quoted above is wondering?
I've been purchasing rental properties for cash for the past five years since I cannot get a mortgage due to 2 baddies (less than $300 each and both will fall off by 2020) on my credit reports.
So now I have 6 units in 5 properties that produce a decent monthly income for me.
How can I use these as collateral for a mortgage, or even a personal loan of any type. By "any type" I really mean a loan with an APR less than 20%.
Most places I ask about this have no clue about how that would work, or they just say "we don't do that". I thought that lenders like it better if there is hard collateral, especially collateral that produces a monthly income, to secure their loans? So what if there are two utilities saying that I owe them a pittance from 5 years ago (I don't really, but try telling that to the CA's and the CRA's)?
I actually had a need for a very short-term $10K loan a couple years back, I tried a few places that said "we don't do that". I found that I needed a "hard money lender" and then figured I'd try a *pawn shop* with deed in hand for one of the properties. They came back with an offer for me to sign the property over to them (and pay all attorney fees, filing fees, etc.) and then loan me $3,000 at 36%, pre-computed with large origination fees. Needless to say, I walked out and kept the title to the property that was worth at least 10 times the amount they were offering to lend.
To our OP and the other commenters:
We may be getting sidetracked by thinking about business models when the problem (as Irish began to wonder) is the usual problem people come to us about: I want to buy a house but my scores are bad.
Note that our OP mentions in the first post needing a very short term 10k loan a few years ago and being unable to get anything more than 3k at 36%. That's what jumped out at me -- nobody with decent scores and income should have trouble getting a 10k personal loan.
And in the last post the OP writes:
"But then I started working on my girlfriends credit and she has much better score than me with which to "personally guarantee" any loan the business may need...."
Again not a surprise to me (and possibly to Irish) to hear that our OP has bad credit scores. But it may be the case that our OP should first do the baseline stuff we suggest to everyone. Learn about how the FICO scoring system works, pull all three reports, talk to the people in the rebuilding forum, develop some kind of plan for improving his/her personal scores. Once the OP makes a little headway on learning the basics, then he or she can explore in parallel issues about business credit.
Anyway that's just a thought.
Usually smaller banks will give you a line of credit. Two of the house flipping funds we advise both have very large cl with medium to small banks. I also believe it appears op needs to work on his scores. On a side note : What started our rebuild was when we needed $5K for 30 days. Dw and I went to non prime lender and got the money at about 15% in about 2 hours. They reported this to all 3 cb. This at the time was the only thing in our credit history after years of cash and carry.