What do bankers look for?

First off, this website is awesome! It is so good to see a community that helps people that are new to the real estate game. With that being said I bring my first question to the forum.

What kind of measures do bankers look for when you apply for a loan on a income producing property? I am referring to IRR, NPV, DCR, ect. I am building a proforma for evaluating properties and want to make sure that I include everything. Thanks for your help!

Edited: 06/26/2010 at 06:59AM

Will Barnard

Rehabber · Santa Clarita, California

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Jan 19 '09, 10:39 PM

Your credit history, credit score, dscr, debt to income ratio, possible experience (depending on the investment), and the financials on the investment including, but not limited to, gross income, loss due to vacancy, all operating expenses, capital expenses, net operating income, debt service, and cash flow.

Edited: 06/26/2010 at 06:59AM

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com

Don Levy

Real Estate Consultant · Orcutt, California

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Jan 21 '09, 09:10 AM

Nationwidepi has it right. I would also suggest going to Google and looking for information on commercial investing and loans.
Good luck,
donrock

Edited: 06/26/2010 at 07:00AM by Moderator

J Scott

Real Estate Investor · Atlanta, Georgia

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Jan 22 '09, 02:31 AM

It really depends on the kind of lender you're talking to and the kind of loan. For example, a large bank may only care about your financial situation (credit score, income, cash reserves), while a hard money lender might only care about the investment/deal.

Additionally, if you're applying for a traditional loan with a large bank, the information they're going to want is going to be a lot different than if you were applying for a commercial loan.

Can you give a bit more information about the lender/loan type you're working with?

Edited: 06/26/2010 at 07:01AM

J Scott, Lish Properties, LLC
Telephone: 770-906-6358
Website: http://www.123flip.com
http://www.123flip.com

Diane Menke

Contractor · Philadelphia, Pennsylvania

184 posts
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Jan 22 '09, 02:48 AM

Klyde,

When I got my first cash out refi from my home, I was lucky to have my residential mortgage banker who I had worked with for 10 years and who refinanced that loan, put me in touch with her buddy in commercial lending. She put a good word in for me then called me to say "don't screw up!"

So maternal. I still love her though.

What was nice about this besides the intro was I had two professionals in small institutions looking out for me. They were then and still are very helpful to go to with questions about what I want to do next. I always get their ear. The VP of the bank knows me by name even though I am a very small time customer there.

When I went to the bank for my commercial loans using my cash out refi from my home, I had along with all the usual financial stuff like Tax forms, P&L, a pro forma and a business plan. I worked on that plan for a couple of months.

It may sound a little like over preparing and maybe the bank even thought it was kind of "cute" but I learned A LOT writing my plan down and making it make sense. I had a couple of friends who were in business look it over for feedback and I learned SO MUCH doing this exercise. I encourage you to write up your plan for making money doing RE. You should do this no matter what kind of lender you are speaking with.

Good luck to you
Diane

Edited: 06/26/2010 at 07:01AM

Ofgift Gift

· Tucson, Arizona

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Jan 22 '09, 03:46 AM

Diane, That's FANTSTIC advice.
Ofgift

Edited: 06/26/2010 at 07:01AM

James Hiddle

Real Estate Investor · Altus, Oklahoma

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Jan 22 '09, 05:49 AM

I agree with Diane a well written business plan is a big big plus if you can provide that to lenders they will be very impressed.

Edited: 06/26/2010 at 07:01AM

Klyde Waggsdale

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Jan 22 '09, 07:09 AM

Thanks for the advice guys! I find myself having so much fun putting together the analysis of rental deals. I never thought I would have fun building an excel spreadsheet!

I am looking forward to sitting down with a lender and blowing them away with my throughout analysis.

Edited: 06/26/2010 at 07:01AM

Brad Wolken

Handyman · OFallon, Missouri

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Jan 24 '09, 09:36 PM

I love reading your questions, Klyde. Here's an addendum question:

Any spreadsheets around for those of us who may not have the time to build our own?

Edited: 06/26/2010 at 07:02AM