First meeting with a lender

10 Replies

Hey everyone,

I'm just starting out and getting my ducks in a row, so to speak, I hope to line up a RE agent, lender, and insurance broker to use primarily as my "team" that I go to. I have my first meeting with a lender on Wednesday. It is a portfolio lender that I was referred to by my RE agent. Initially, I thought I would just have an informal discussion about my plans to rehab distressed properties and either sell them, or rent them. At first, I would probably use HML for the acquisition, and then refi if it were to be a rental. After a general overview, I would ask if they were interested and had any products that would suit my needs.

The more I think about it, I'm wondering if I should submit a business plan that outlines the LLC, the members of the LLC, goals, strategies, etc. At the end I would attach a few spreadsheets of real properties with estimated rehab costs, holding costs, etc. That way he knows exactly how I will be doing my DD when analyzing a property. I would give it to him printed professionally in a binder.

Thoughts?  Am I overthinking it at this stage, as I was initially going to see if he'd at all be interested in this?

Thanks!

--Jason

Moderator--could you please move this to the "Starting Out" forum.  While my question is about a business plan, I believe it should be over there.  Not sure what I was thinking.

Ask the lender to send you a loan application?

@Kirk R.  

Thanks.  My goal was to build a bit of a relationship and understanding first.  That's where I was kind of going with the question.  My thought was familiarity with my plans and goals would go further than just showing up as some stranger off the street.

However, sometimes the simplest answer is correct.  Thank you for the input.

@Jason 

@Jason Krick  undefined

Do you have any cash? How is your credit? The banker will want to see 20% down payment. Then you will need to have the rehab costs. Then you could refi the deal. maybe.

When I started I had a coupe of houses free and clear. Cheap houses. I then started leveraging them to buy more. I had several HeLoc's. I did not approach a commercial lender until I had 8 or 9 owned.

Even portfolio lenders are generally going to be looking to do recourse loans (against your personal credit, not an LLC). If you want to loan to an LLC, you'll be moving into non-recourse loans. Some lenders will do that in their commercial department... other lender cater specifically to LLC and IRA lending. Personal loans are in the 4.25 - 4.75% rate for 30 years conventional... if you go with a portfolio lender generally you won't get more than 15 years fixed... others will do 30 year amorts but have 5, 10, or 15 year balloons. The interest rates will vary anywhere from 4 up to 7%. Conventional you'll need to put 25% down... portfolio write their own rules so they can vary from 20 - 35% though the rare find will go even lower on the down payment. Commercial loans tend to be more variable, shorter durations and amortization, and higher interest rates.

Frankly, I'd skip all the relationship stuff... especially as you're just starting.  Chances are the banker knows more about the game then you do at this point if he's been doing investment loans a while.  You need to know what their lending criteria are... what down payments... can the seller carry a 2nd... do they do cash out refis?  What are the closing costs?  What are their terms, amortization, and balloons?  How much seasoning is required before a refinance?  Do they limit the number of loans?  What % of rent will they count towards income?  Do they require 2 years tax returns or will they take current year rents?

I've actually been working to locate portfolio lenders locally here in Michigan... apparently my email got so specific a few bankers thought I was a scammer and made me call them to prove I was actually a person :)

@Arlan Potter  @Nathan Emmert  

Straight to the point.  Yet another reason I love this site.  I've been reading the forums for a few months and you two are certainly people whose opinion I hold in high regard.  Thanks for taking the time.  

Arlan--I have cash, if needed. I should have qualified my financing plan initially. We have a private lender lined up who will lend on HML terms. He has worked in the past with my partner and may be willing to finance 100% on smaller projects (>100K), while only collecting his payment and accrued interest amd fees after we sell, or refi. They have a history and he trusts my partner. I can access the cash personally, if it would be needed. There is a brokerage account I can withdraw from, as well as an old employer 401(k) that I have been debating to see if I can roll over into a self-directed. I know there are guidelines and I don't know if I can do the rollover and have the funds for my LLC with a partner also in it. I haven't researched it that much. My credit is in the low 700's. I've been fighting to get it up since my ex torpedoed it from '05-'08. Admittedly, that could be a sticking point, but I won't know until I ask. Actually, I just thought of a question. Let's say I purchase with my private lender. I buy for 50k, rehab and associated fixed costs are 15k, and ARV is 100k. In this hypothetical scenario, when I look to refi, would most lenders recognize that forced equity in lieu of a down payment when approving a loan, provided there is an appraisal? Or would they still expect money out-of-pocket as a "down payment?" I was under the impression that most conventional lenders need that equity in there as a cushion for them, while HML guys prefer the "skin in the game" as a means of motivation.

Nathan--what you stated is exactly the info I am looking to get at our meeting.  I want to lay out my plan, and see what financing scenarios would be available to me.   I don't really see me making a move until February or so,  unless there's a deal I can't pass up.  I want to know what is available to me before I plunge in.  I'm learning more every day, and I want to be prepared for anything that may come, positive or negative.

I'd say to skip the relationship stuff: banks can't be convinced. They look at your financial picture and decide if you are within their lending criteria. Have you considered asking the lender what he/she is hoping to achieve with the meeting? Start with what they expect. It's like a job interview where you are the candidate. If you have any real estate history, organize and print, put in a nice pretty binder. If you don't, really look at what the lender wants to see. 

Good luck.

Jason,

Refinances are just that, modifying existing financing. You won't ever bring money to the table unless the value has dropped or you are changing the LTV. My bank will give me 70% of the appraisal value on commercial terms. Which is probably average. So in your plan you could pull out 70k and you'd get a check for the rest after closing costs and paying off the liens. The point of a refi for an investor is pull out equity not put more money in a project. Unless current terms are just terrible. Closing costs add up.

Good luck

@Josh C.  

Thank you for the insight and opinions.  It's greatly appreciated.

Many banks in my experience work like this.

Day 1: Yes

Day 15: Yes

Day 30: Yes

Closing Date: No

This is typically a result of the guy you talk to at the bank is generally in the position of selling loans, so he's more likely to say yes.  Once it gets to loan committee, that is where the real rubber hits the road.  Be prepared to be turned down after having been told yes for about 30 days.  We have interviewed literally over 100 banks to find the few that work well for us.

Once you establish that relationship and start doing a few deals, even years into the relationship, be prepared for the bank leadership to shift gears and all of the sudden not do loans like you are doing and your financing goes away overnight.

As such, always have multiple lenders because they may walk away at any minute.  This is usually not the fault of the rep you are working with.  It's the leadership of the bank that decides.

Now in preparation for that first meeting, banks will often want you to fill out a lot of information.  Start using those to create a packet of information for banks you talk to.  They all ask for the same stuff.  If you walk into a bank with a packet in hand, it's less work that the banker has to do and reflects competency.  It may help you get across the committee line.

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