A common question I see on the forums is, “How do I find a bank to lend to me?”
The answer should actually sound fairly familiar. You’ve got to pound the pavement. Here’s how!
What Type of Bank Should You Look For
The first thing to figure out is what type of loan or institution to pursue. One of the best ways to get started in buy-and-hold real estate is with an FHA loan or 203K loan. With these loans, you can get up to 96.5 percent of the property financed at a very good interest rate. The only problem is that these loans are only available to owner occupants. Luckily, you can buy anything up to a fourplex with it. So why not buy a fourplex, live in one unit, and rent the other units out?
You’re also eligible for up to 10 Fannie Mae–backed loans. These loans have to be in your name and not that of an entity such as an LLC. However, they are easier to get than a standard bank loan if you have decent credit and income. Any mortgage broker worth their salt should be able to help you get one of these.
After that, the best place to look is community banks. Large national banks are usually very conservative when it comes to smaller investors. They predominantly want to lend to large companies or homeowners. On the other hand, there are also some national lenders that focus on single-family investors — such as Lima One Capital and CoreFirst. These are worth looking into. They will generally have 30-year amortizations, but also more fees and a higher rate of interest than local banks. I would generally avoid hard-money lenders, as they are simply too expensive for holds. Even for flips, their fees and interest rates will eat up a lot of your profit.
Therefore, in my opinion, community banks are your best bet. It’s easier to build a relationship with these banks. And because the loans you will be taking out from them are portfolio loans (they keep them in house and don’t sell them on the secondary market), you will usually be granted a bit more leeway than you’d get from the one-size-fits-all national banks.
But where do you find these banks? Well, I’m glad you asked.
1. Ask for Referrals
If a bank has lent to another real estate investor who is doing what you are doing, then why wouldn’t it lend to you? At the very least, your odds are better. So the very first place to start, when looking for a bank, is to ask around. Start by asking any real estate investors that you know. Then, go to your local Real Estate Investor’s Association (REIA) meeting. Rub shoulders with other investors, and ask them who they are getting loans from. I’ve never met a single investor who was shy to answer this question. And there’s no reason to limit this question just to real estate investors. Be open about what you do. Always be asking for referrals, even if it’s unlikely that the person you’re asking will have some. I’ve been pleasantly surprised before.
Or why not ask in the BiggerPockets forums? I’ve answered this question multiple times for people who are looking for Kansas City banks. If anything, this helps secure my relationships: These banks recognize that I’m driving business. So why wouldn’t successful investors tell you which banks are lending?
2. Target Your Networking
While investors are great for bank leads, another place to look is by networking where bankers network. For example, I found one of our lenders at a CCIM conference, which is for people in commercial real estate — many of whom are bankers. Other places you could consider are the chamber of commerce, property management associations, and any sort of banker networking event you can find. Some banks sponsor events themselves, so these would be worth checking out too. Keep your eyes open and always be networking!
3. Don’t Be Afraid to Call Around
Another thing you can do is good ole-fashioned cold calling. When I first got to Kansas City, I got a list of 30-or-so local banks and, I just went down the list one by one. I called every single bank and asked to speak to a lender. Then I just told them what I was looking for:
“We buy single family houses and small multifamily properties throughout the metro area. We then fix them up and rent them out and are looking for a bank that’s willing to refinance those at 75 percent of their appraised value. Is this something you would be interested in?”
This was back during the recession, so most just said no. But a few said yes. I would then set up a lunch and try to build some rapport while making sure we were on the same page. Then I would submit our documents and see what happened. Most of the time, it didn’t work. But we got a few lenders this way. And that was back when nobody was lending. It’s much easier today.
4. Target Your Calls
The most creative way I’ve found to find banks is to actually search for which banks ones lending to people like you. The process goes like this:
- Login to ListSource, DataQuick, or any other data lists site.
- Search for properties with the following criteria:
- In the area you are looking in
- Owned by a non-owner occupant
- With a loan taken out in the past year (or purchased in the past year)
- In the price range you are looking to buy in
- Write down each bank which has made a loan to such individuals or companies, and give them a call.
What’s great about this method is it drastically narrows your search in comparison to simply cold calling. Each bank on this list has made it abundantly clear that they are willing to lend to investors who buy in the area you’re buying in, at the price you’re looking to buy. So why wouldn’t they lend to you? I have found three different banks with this method and highly recommend it.
The Bottom Line
The most important thing is to get out there and start actively looking. Don’t get caught in the woe-is-me procrastination trap. There are plenty of banks out there willing to lend to investors, you just have to find them. After that, of course, you have to convince them to lend to you. But that’s the topic of another post; namely this one. Good luck!
Have you had luck using local community banks?
Share your experiences in the comments below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.