Good day BP!

I'm am starting to build my work team and wanted to see what success folks have had with establishing credibility with a lender. I have capital to back up my investment but know that is not enough. Since I have not closed my first deal I am looking for some guidance as to how to begin the conversation.

I have identified a list of local banks in Jacksonville, FL area but I need to know what I should expect when I meet with them. I understand first impressions are lasting impressions!

What I should prepare?
- net worth sheet (definitely)
- mock deal?
- any other ideas

Thank you and I appreciate any feedback

@David Acra , honestly the best way to open to the conversation, in my opinion, is to just say exactly what you're trying to do. Do you plan on doing fix-and-flips? Buy-and-hold? etc.

Allan,

Thanks for the response! I am looking at buy and hold for multi family.

@David Acra , not a problem. There you go, with buy-and-hold for multi-family in mind, write down the list of things you plan on doing, how you plan on doing them, and what you have started doing already towards reaching those goals. Then study your lists before going in. Try to have an answer ready for any question they might ask, before they ask the question. This will definitely build credibility. 

PFS and Real Estate geared Bio. 

@David Acra - what size deal are you trying to do?  A 3 family or a 100 unit?

Hi David, I recently started looking at Jacksonville, FL as a possible location to buy and hold a multifamily property based on some research I've done but I've not started to communicate with any lenders yet.  If you dont mind sharing who you may be reaching out 2, that would be great as I'll also plan on doing so in the coming week or two.  My hopes is to buy my first commercial multi family with 25 to 40 units provided there is some upside in the property.  Anyway,  I would appreciate any leads you could share.

Hello @David Acra .  

I reached out to a local community bank when I started 2 months ago.  I spoke to the head of commercial lending and I let him know what I was planning, my background, my goals, my current financial position, etc.

Once we got past the initial questions and discussion, and I felt that we could work together (eventually) I opened a simple checking account with them just to give them my business.

After a few weeks of communication, I shared my latest deal with them.  Here is my email:

"Good Morning XXXXX:

I just wanted to get you some information on the next investment I am investigating.

Please see the attached report for XXXXXXXXXXXXXXXXX I am inspecting the home tomorrow. If it goes well I will make an offer.

The attached report assumes a commercial loan (25% down) and fully rented.

My other option is an FHA with 3.5% down and I would occupy the main unit.

Please let me know if you feel you would be interested in working with me on this as my lender. I would love to kick-start our relationship with such a great deal.

Also, please let me know if I would be dealing with someone else at XXXX should I opt to go FHA/3.5% rather than commercial.

I am looking forward to working together!

Thank you,"

The report was a full proforma on the property.

I got a very favorable response and I think we will be working together.

Now I am not just trying to get financing for one deal. My long-term goal is to have them serve as a portfolio lender for me, maybe get a relationship with their REO department to pick up some foreclosures or even buy some notes from them.

In the end, it's really just about relationships.  Show them that you have a plan and goals.  Show them that you are a PRO and not just someone hoping to get lucky on a loan.

Break the ice.....reach out!

Bob

Chris,
My goal for my first property is 20-50 units. B or C class in the Jacksonville area. I would like some value add opportunity but through cosmetic improvements not structural.

Jorge,
I have an initial list of local banks and once I do a little more due diligence I will definitely share with you when I thin the herd.

Bob,
That, my friend, is great. I really appreciate the sharing. I just want to make sure I present myself as someone who should be taken seriously and was looking for advice on how to best approach someone and begin that relationship!

Thank you everyone and any more additional insights are welcome. I will also follow up with my success - or missteps - along the way!

I like @Bob Razler email - great approach. I'd talk to several lenders. It's just as important to choose someone you also enjoy working with. If you're lucky, you could end up with a fellow RE investor and gain a mentor out of the deal. A lot of these guys enjoy being a part of a young professional's roots. You could learn a lot if only you reached out to the next lender and asked them to sit with you for 30 minutes. Good luck! :)

One approach you should consider is a commercial mortgage broker.

The downside to approaching banks is that it is time consuming, and more importantly, it may actually pigeonhole you into only investing one specific way. Many banks have their own requirements and limitations on what kind of investment activity they are willing to fund. You may come across a great deal, but the bank you have an established relationship with might not be willing to fund it because it is a square peg that won't fit in their round hole.

A mortgage broker has established relationships with multiple lending sources; big banks, small banks, hedge funds, private money lenders, etc... With a mortgage broker, you will be able to expand your investment strategies to meet your needs. They will be able to pair you up with a lender that can fund your specific transaction on a case by case basis. More flexibility will tend to provide you with more opportunities.

@Bob Razler great method of communication bob. I dig it. I'm in the same spot right now trying to build relationships with lenders so that I can " trade up " and get into multifamily investing.

Thanks @Logan McCray .  I also think patience is key as well.  I try not to ask for too much too soon.

After listening to one of the recent podcasts I also want to pursue a line of credit with them once I get established.

Let me know how you make out on your end.  I would love to hear how it turns out for you!

Bob

Keep in mind that anything over 4 units will be considered commercial and you cannot owner occupy it and ask for a FHA loan with 3.5% down.

For 5-100 units I would approach a local bank that does portfolio lending and speak to their commercial division. LTV will be lower and rates a bit higher.

For 100+ units, talk to a lending broker who has relationships with several lenders who offer various types of loans including agency, CMBS, bridge, etc.

@Bob Razler - you should just go FHA to start, to preserve capital for any emergency repairs and to allow to get into the next property sooner.

After that, do as many conventional loans as you can get; there are limits to that, and those limits are subject to change over time. And do not go into the "need to form LLC" until you have used up the conventional limit; just carry a big insurance policy and umbrella coverage too.

Hello All:

Thak you @Steve Babiak .  

Thank you for your comments. Yes, my plan is to always go FHA if possible. More cash left for more deals/expenses. My issue here was only the idea that the unit to be occupied can rent for $2k per month and I only pay $1500 per month where I am. So from a mathematical perspective at somepoint, it pays NOT to occupy.

Bob

Originally posted by @Bob Razler :

Hello All:

Thak you @Steve Babiak .  

Thank you for your comments. Yes, my plan is to always go FHA if possible. More cash left for more deals/expenses. My issue here was only the idea that the unit to be occupied can rent for $2k per month and I only pay $1500 per month where I am. So from a mathematical perspective at somepoint, it pays NOT to occupy.

Bob

If your loan allows for you to move out after twelve months - many do - you can do the move out and then collect rent on that unit. So I would find out about the duration of the owner occupancy requirement.

Hello @Steve Babiak .  That is my plan.....lather, rinse, repeat.

Originally posted by @Bruce Petersen :

PFS and Real Estate geared Bio. 

 Bruce is spot on, this is exactly what you need. Consider having your real estate geared bio on a personal website. You can quickly share that with any vendors/contractors/lenders easily. Makes you feel a little more "serious."  Make doing business with you easy, whatever you do. 

I wrote an article on this topic I think you'll find helpful: https://www.biggerpockets.com/renewsblog/2016/01/06/selling-loan-submission/. Good luck!

@David Acra I find with this kind of thing it's good to emulate people or businesses that are ahead of you. Banks love to loan money to very successful businesses. What do those businesses provide to them as evidence of their success?

A) Balance sheet (known as a Personal Financial Statement for Individuals) - Assets you own minus Liabilities. On the PFS this equals your net worth. For a company it is your equity.

B) Income Statement (known as your tax return/1040 or P/L for individuals) How much cash did you take in for the year minus expenses?

C) Business Plan - this is very simply the story of how you can make the above two things better over time.

There are any number of ways to complicate this but at the end of the day these are the things that grow wealth and that is what the banks want to be your partner in growing wealth. 

@Bob Razler

I definatly will Bob, Good advice btw. I will try to build a relationship slowly but with an intentional focus to see what options present themselves.

I was looking for a post just like this. Thanks for asking the question.