REO: Should I show investment analysis to the bank?

Question

I'm considering purchase of an REO triplex and am wondering if it's prudent to share the investment analysis from my agent to the bank I'm hoping to secure financing from (not the bank that owns the property)?  Her analysis is more conservative than mine, but relatively similar.

Just wondering if sharing this information is standard, or optional.  This is my first investment financing package (not owner-occupied) so I'm not sure what details they need on the property beyond our personal financials for financing.

Page Huyette · Answer

Update:  Went in to bank #2 with a general analysis providing details on what's important to them:  rents, taxes, major repairs.  Didn't show my own projections on additional items and "what-if" scenarios that  I've run so the deal meets my own parameters.  Am now talking to them and 3rd lender, so we'll see where this goes.

I still find it fascinating, whether it's real estate on another venture, it often comes down to the individual you are dealing with and whether they want to put forth the effor or not.  So many want to say no so you'll just go away and make their day easier, but there's always someone out there happy to help you see if the deal will fly if you dig deep enough.  It's about relationships and building a network.

For example:  Today I was talking to bank #3 about a rehab loan, and was told I needed to have 2 years of income tax showing rental income (for any property) to allow 75% of gross rents to be thrown into the mix.   After a quick head scratch, I went to someone else at the bank and asked if two years rental income Schedule E from '09 and '10 would suffice to show experience--lo and behold it would.

One day it's up, the next it's down, but I keep on truckin'.  Every day brings a new real estate adventure.  The lesson:  don't take someone else's no for an answer, only your own.

Page Huyette · Answer

Wonderful responses from BP members, as always.  Love you guys.

Met with my banker today and got some discouraging updates, but let him know that I'm the tenacious type, just in case he was wondering.  The deal seems more out of reach than it did just hours earlier, but I appreciate Frank G's comment and others that they may not have all the info they need.

Turns out that, based on my somewhat conservative estimate, using the LOC on our primary for the down won't get us as much as we need to pull of a 25% or (possibly, if lucky) 20% down for the property.    The bank didn't shut the door, just said "Let's see where the appraisal for the LOC comes in on your primary residence."  I don't want to rely on that,  since I know appraisers in our area have been conservative of late and think this is a good enough deal to burn some more midnight oil on to find other methods of funding.  Hard money?  Not sure how that plays into a loan scenario for this propert--specifically, how it's viewed as a down payment financing option.  Thoughts anyone?

That's why I love working deals like this--so many variables.  I am always optimistic, and the worst that can happen is that it doesn't work, but I've learned volumes that will apply to this deal or perhaps another.

I always keep my eye on the prize, assuming that it WILL work out.   Having advice from those of you with more experience in my back pocket makes this journey even more exciting.

Frank Gallinelli · Answer

Hi Page -- Just a few quick thoughts:

First, I would not pass along an analysis prepared by a third party, especially someone who might have an interest not entirely in concert with yours. Always do your own analysis, after you do your own due diligence. Unless you take that approach, you won't really be confident that the facts are accurate and complete, or the reasoning in the analysis is sound.

Second, while I agree that the lender will have its own underwriting criteria and that satisfying those criteria is what matters most, that doesn't mean a good analysis and presentation are superfluous. You shouldn't take for granted that the underwriter has all the information he or she needs in order to apply those lending criteria, or -- again-- that the information is complete and accurate. You want to be part of the conversation, so demonstrate your own rationale for why the deal makes sense.

Finally, providing a clear and professional presentation delivers the message that you're no amateur -- you know how deals work and you know what you're talking about. Many times I've heard from folks I deal with or have taught that it was their presentation that tipped the scales in a transaction.

Even when it doesn't, it builds your reputation as a knowledgeable professional --- and that's what may seal the next deal.

Page Huyette · Answer

Thanks guys.  Its a local bank I've done business with before.  They have in-house loans as well as ones they broker for other banks.

Paul Strauss · Answer

The lender likely doesn't care.  They have their own criteria and they're making a secured loan, so their primary consideration is not your capacity to repay, but the value of the underlying collateral.

James Vermillion · Answer

I would think it would depend on the current relationship and as Joel mentioned, the type of lender.  When we were getting our start we talked to several VPs of commercial lending, and having actual numbers when presenting our business plan to them was helpful in showing them that we had done our due diligence and were capable of conducting proper analysis.  However, once the relationship was formed we did not show the bank specific numbers unless it pertained to the deal (ie we do show rehab costs when they are tied into the loan).   But as Joel said, most lenders will use their own methods in determining if they will lend or not.

Joel Owens · Answer

The bank usually has their own internal controls for approval.

Are we talking a credit union or a local, regional, or national bank, or a private source??

Really depends on who you are getting funding from. If you submit something that shows your lack of knowledge with the numbers that could actually hurt you and show your enthusiasm for buying and inexperience.