Don't Get Wrecked By Lines of Credit!

Mike DeHaan: [0:01] Welcome to the collecting keys Friday focus. What's going on, guys? Welcome to this edition of the collecting keys Friday focus. If you don't know me, I am Mike DeHaan, one of the hosts of the collecting keys real estate investing podcast. And Dan and I, we record these Friday episodes every week to kinda do a deep dive on a different topic that is relevant for us at the time. So anyways, on this episode, I wanted to do a little bit of a, I guess, escalation and continued conversation over kind of a financing situation that we talked about in this week's Wednesday, Mike and Dan show episode. So if you listen to that episode this past Wednesday, you heard us talk about how one of our lines of credit had been called by one of the financial institutions that we worked with. We had a 100,000 line of credit with them. We'd used it heavily throughout the last year. It was an unsecured line of credit, and we went to pull some more money out of it. And they basically told us that they're not gonna let us do that, and that they were going to be ending our line for no reason other than risk mitigation. And this is a really important situation that happened, not necessarily because we need the $100,000, but because it is a good lesson for people that utilize these kind of line of credit and these different financing products that are out there in their business, which has become, you know, extremely common for people, especially over the past couple of years where money was extremely cheap. Banks were heavily looking to get as much yield as they could while rates were so low, and they were giving out money like candy. And it's always been said by kind of like the OG businessmen and investors that, you know, be careful. They can call these lives anytime.

Mike DeHaan: [1:45] And people have always said like, oh, it doesn't happen. You have you know, if you're paying the bill, they won't care, all that sort of stuff. And this has been proven the complete opposite. We paid it on time. We used the line. They were making money off of us, and they just decided that they didn't wanna continue working with us as a business. So, you know, good warning for everybody that they can happen. The stuff that the old school business people warn you about, there's a reason they warn you about those things like, you know, HELOCs, you know, home equity line of credit, unsecured line of credit getting called. They can happen, and it does happen and happen to us. So, anyway, I wanted to spend this show diving into going into 2023 as the recession kind of continues or starts. I don't really know where we're at. There seems to be contradictory things out there being said by people, but kind of how to go about lining up financing and managing financing going into this next phase of the economic cycle and, you know, some ways that you can make sure you can keep being productive and you can keep growing your business if you rely on financing at all, which is if you're a real estate investor, you more than definitely do. So, anyway, going into 2023, when it comes to financing, whether it's long term financing, lines of credit, things like that, relationships are gonna be more important than ever before. I know that it's been said by a lot of people that this business is built on relationships. That is going to become more and more true as we get into kind of tougher times.

Mike DeHaan: [3:10] Right? And people are starting to mitigate risk because they are going to allocate more risk to people that they have a good relationship with. So, you know, different banks, when they're looking at their books and they're saying, like, how can we prevent any potential losses or problems? The people that are kind of, like, in their cool kids club. Right? They're gonna be more willing to work with those people than the ones who, you know, are brand new or don't really participate or have a relationship with that bank. And so, like, there's a couple different ways that you can do that. Start establishing those. Well, I guess, first off, if you have relationships with any lenders and any banks already established, nurture those. Right? So spend time connecting with your reps regularly. Take out a new mortgage with one of them. If you're looking to do a refinance, even if their rates aren't potentially quite as good as some of, like, the national lenders. Trust me. The national lenders don't care about you as much as, a local lender would. You know, refinance with one of them, store some cash into a bank, you know, bank account with them. You know, if you have $50,100,000 dollars of reserve cash to store it in their institutions so that they can use it in their business, Things like that will go an incredibly long way. One of the reasons that our line got canceled as I was inquiring with it was it was a institution that we had used a Schirkefeller line of credit. We had a bank account there. We never stored any money in it.

Mike DeHaan: [4:25] We paid the bill from an external account. We drew it directly to an external account. So all they knew was that, you know, all they could see was that we had $100,000 that would kind of come and go and everything in between. But they never actually saw any cash or business take place. So we did not have a good relationship with them. That's what they got called. So establish those relationships, and that will prevent them from having their first place. On the same line of that unsecured, you know, as you're building those relationships, if you have any unsecured lines of credit or any revolving lines of credit out there, they have adjustable rates, things like that, reach out to those institutions, whether you have a good relationship with them or not, and just sort of ask about what their plans are with their product, they plan to continue it, how you're gonna be able to extend it or renew it, what that'll all look like, and just sort of like plant that seed that you are transparent and that you are open to continuing working with them. And that as well will sort of like boost up your ability to keep getting out to those funds and not necessarily getting called or, you know, writing into a situation like we did. So, you know, as you're building those relationships, just be open and just say like, hey, I have this line with you right now.

Mike DeHaan: [5:28] I just wanna see hey. You know, I have a friend that I heard of who just had a line of credit similar to mine ended. I wanna see if I have to worry about the same sort of thing, and just see what they say. Right? And that way you can, you know, hopefully position yourself a little bit better. So establishing relationships, taking in all kind of the existing products that you already have. Those are kind of like the first main things that you should do. And then as you are going into the new year and you're starting to look to establish some more liquidity on stuff, establishing these new lines of credits, when you're doing so, try to get more than one with different institutions that you kinda have some fair pass ups for other ones, you know, and and spread out how you get them a little bit. Because kind of how these different lines work and these different debts work is they'll be on, like, a one year sort of renewal cycle. So if you get access to, say, $50,000, if you've never gotten a business line of credit before, if you have even the most basic of established business and you go and you apply for a $50,000 line of credit, you can probably get it. Extremely easy to get. But what they'll do is every year, they're gonna wanna review your business financials, and they're gonna wanna see if they can re renew you for that same amount of credit. If your business is doing well, they might even increase you. If it is, you know, kinda iffy, they might keep you the same, but they might cancel it. Or if they don't have a lot of transparency like we ran into, they'll cancel it.

Mike DeHaan: [6:45] Right? But anyway, it's usually on a one year cycle. So as you're going and establishing these lines, try not to line them all up so that you have, like, you know, eight that are all being renewed at the same time. Because you're gonna put yourself in a potential situation of what if all eight get called at the same time, and you don't necessarily have that much money on hand, you have it tied up in projects, things like that, you're gonna get stuck pretty quick. So try to line them up with like, you know, a few months apart. So that way, you know, if one of your $50,000 lines gets called, you can use another one to pay it off. Obviously, that's not an ideal situation. But if you're using it responsibly and you do have payoff plans for these, it can be a way to buy you some more time if needed. But, you know, now is gonna be a good time to start going out and seeking these lines so that you have that little more liquidity because there are gonna be opportunities coming. And when you're using these lines, like I said, make sure that the way that you're using it is for parts of your business that you have a near certain ROI or at least an easy way to get your money back. Right? So whether that's, you know, putting it into a property, you know, put that into, like, the equity portion, not necessarily the renovation portion. So that way, you should at least be able to get that back into it. I don't know if you have to look at the property, but using it for marketing, you know, our systems, use it for marketing assistance that you have an established consistent return on investment. Don't necessarily use it for exploration parts of your business that you're not sure if they'll work, and all of a sudden, you're gonna try to figure out how to cough up that money that you never got back for whatever I was trying to use.

Mike DeHaan: [8:15] But, you know, like, save that stuff, like the exploration stuff for cash on hand that you have. It's just a little bit less risky and save the lines of credit for when you're trying to scale up the system that you already know are working so you can at least get some money back. And then as you start to sort of pursue these and you're building these relationships, you're spending this money, you're looking to try and get more leverage to build your business. One of the big things is gonna be huge by 2023 is if you have your ducks in a row, when you're talking to these different lenders, you know, you have your tax returns, you have your finances, you have your p and l's, all that sort of stuff you can go and you can bring them. That is going to really help you stand out amongst the people and all the noise who are gonna be starting to get desperate. They're having their finance get canceled. They're trying to get out of deals that they got themselves in situations with. They'll immediately know that you're not one of those people. You alleviate the red flag. You can come in prepared. You have everything that they wanna see, and, you know, you're willing to have a a cordial conversation with them. So that'll be just a really quick easy tip. All the stuff that you should be doing this business owner anyway. If you can stay on top of that, you can bring that to your lenders as you're trying to get these different lines. So that's kind of the basic gist of it.

Mike DeHaan: [9:22] When it comes down to it though at its core, it's all gonna be about communication relationships, just like everything else in this business, and making sure that you are giving yourself ample time and opportunity to pay back any of these debts in case they do get called and using them in responsible ways. Just like with a credit card, you know, you wanna use a credit card for things that you know you're gonna be getting money back for. You don't go and, you know, put $20,000 on a credit card that's gonna be doing a month if you only make $5,000 a month. Some people do that. That's irresponsible. Don't be that person. Lines of credit and these type of kind of financing are exactly the same. And as we get into these sort of recessionary time, banks are gonna be more sensitive, stuff like that. So just don't be one of those people and, you know, show that you're responsible, build a relationship with the professionals, and you'd be surprised at how much liquidity you can get any surprise in the short amount of time. So anyways, guys. Alright. If you have any questions about that financing, lines of credit, any of that sort of stuff, feel free to reach out to me on Instagram, Matt Mike underscore Invest. I love to chat with people. I'm always willing to, you know, exchange pointers, help people get started, all that sort of stuff. I do have different contacts that can help with these sort of things as well if you're looking to sort of get these initial financing and lines that are set up.

Mike DeHaan: [10:34] So go ahead and shoot me a DM on Instagram at Michael Sworn Best if you want to hear about that. And then if you wanna start getting off market leads, you can wholesale properties, buy off market properties at huge discounts, just like Dan and I do every single week that you've heard us talk about on the various different shows that we've had, you can go to collectingkeyspodcast.com/free and get our free five step guide to start generating off market leads, and that should be able to get you started right away. On top of that, we are doing a bunch of new coaching stuff going into this new year. We are really gonna start ramping up the opportunity that we help other people, the opportunities that we help other people find, and the services that we provide to people who want to take their investing seriously. So go to collectingkeyspodcast.com/store, and you can get a basic outline of everything that we provide there. And as you guys, thanks so much for listening, and talk to you guys next week. Thanks for listening to this collecting keys Friday focus. Be sure to subscribe wherever you listen to your podcasts.