Are banking relationships important? or does it mean you are over leveraged
Member since 2018 · 23 posts · 13 votes
Are banking relationships important? or does it mean you are over leveraged
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votesQuote from @Dan Williams:
Hello All,
Background
- I own 13 SFH all with conventional mortgages.
- Currently, our LTV across all properties is 40%.
- No experience with portfolio loans or commercial lending, educational awareness from Podcasts and Books only.
Description
In many podcasts I've heard establishing a relationship with a Bank or Lender is critical when scaling. I do not understand why having one with a Bank or Lender is important. To me, Lending is a business transaction and if you have the capital, business processes, and accounting to show a Lender you are worthy of obtaining a loan isn't that what matters? It just seems like any Lender would be willing to finance a deal if the deal is good and you have adequate capital. One of the big reasons I can see a relationship with a Lender being more critical is if you are leveraged to the hilt and it's risky to lend you money. While being leveraged to the max may speed up growth; it seems like poor business practice.
My question is:
. - Does my Lending relationship mostly matter if my LTV is risky?
- Wouldn't most Lenders want your business if you have a higher LTV like 40-45% and adequate reserve capital? Thus less importance on Lending relationships?
Thanks in advance,
Dan
The importance is going to kick up and be much more meaningful once you graduate from conventional mortgages. I think your perspective makes sense since you have stuck to conventional mortgages, which are a true commodity (everyone follows literally the exact same standards) so there really isn't differentiation among lenders and pricing/terms will be essentially the same. Once you move towards non-QM, private or commercial lenders, there is much more flexibility and differentiation, so that changes the game a lot and you can get different terms and rates absolutely based on relationships
Harpoon Capital514 Reviews
21 Replies
- 3yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
Yes, it absolutely matters.
A couple months ago we were getting debt quotes for a large apartment purchase. Our normal lender had higher interest rates and tougher terms than other lenders. When they found out they might lose our business, they sharpened their pencil and beat everyone else. That saved us thousands of dollars every year in interest and we got to work with a team we like.
- 3yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Dan Williams:
Hello All,
Background
- I own 13 SFH all with conventional mortgages.
- Currently, our LTV across all properties is 40%.
- No experience with portfolio loans or commercial lending, educational awareness from Podcasts and Books only.
DescriptionIn many podcasts I've heard establishing a relationship with a Bank or Lender is critical when scaling. I do not understand why having one with a Bank or Lender is important. To me, Lending is a business transaction and if you have the capital, business processes, and accounting to show a Lender you are worthy of obtaining a loan isn't that what matters? It just seems like any Lender would be willing to finance a deal if the deal is good and you have adequate capital. One of the big reasons I can see a relationship with a Lender being more critical is if you are leveraged to the hilt and it's risky to lend you money. While being leveraged to the max may speed up growth; it seems like poor business practice.
My question is:
. - Does my Lending relationship mostly matter if my LTV is risky?
- Wouldn't most Lenders want your business if you have a higher LTV like 40-45% and adequate reserve capital? Thus less importance on Lending relationships?
Thanks in advance,
DanThe importance is going to kick up and be much more meaningful once you graduate from conventional mortgages. I think your perspective makes sense since you have stuck to conventional mortgages, which are a true commodity (everyone follows literally the exact same standards) so there really isn't differentiation among lenders and pricing/terms will be essentially the same. Once you move towards non-QM, private or commercial lenders, there is much more flexibility and differentiation, so that changes the game a lot and you can get different terms and rates absolutely based on relationships
Harpoon Capital514 Reviews - Member since 2018 · 23 posts · 13 votes3y
Quote from @Robin Simon:
Quote from @Dan Williams:
Hello All,
Background
- I own 13 SFH all with conventional mortgages.
- Currently, our LTV across all properties is 40%.
- No experience with portfolio loans or commercial lending, educational awareness from Podcasts and Books only.
DescriptionIn many podcasts I've heard establishing a relationship with a Bank or Lender is critical when scaling. I do not understand why having one with a Bank or Lender is important. To me, Lending is a business transaction and if you have the capital, business processes, and accounting to show a Lender you are worthy of obtaining a loan isn't that what matters? It just seems like any Lender would be willing to finance a deal if the deal is good and you have adequate capital. One of the big reasons I can see a relationship with a Lender being more critical is if you are leveraged to the hilt and it's risky to lend you money. While being leveraged to the max may speed up growth; it seems like poor business practice.
My question is:
. - Does my Lending relationship mostly matter if my LTV is risky?
- Wouldn't most Lenders want your business if you have a higher LTV like 40-45% and adequate reserve capital? Thus less importance on Lending relationships?
Thanks in advance,
DanThe importance is going to kick up and be much more meaningful once you graduate from conventional mortgages. I think your perspective makes sense since you have stuck to conventional mortgages, which are a true commodity (everyone follows literally the exact same standards) so there really isn't differentiation among lenders and pricing/terms will be essentially the same. Once you move towards non-QM, private or commercial lenders, there is much more flexibility and differentiation, so that changes the game a lot and you can get different terms and rates absolutely based on relationships
Ok, in addition to the numbers, if the relationship dictates the terms then I can see that being valuable.
- 3yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Yes - for conventional the profit margins are often razor thin so really no room for any discounts. In private lending, theres usually a little more to play with so deals can be made, especially if you can offer a volume relationship (multiple deals)
Harpoon Capital514 Reviews As important, @Dan Williams, what will happen if/when you run into an issue with a property and need an accommodation? Bank of America couldn’t care less, but the private lender you have lunch with even a few times a year, and with whom you know personally, will be more likely to help you out.
If I see that you know what you’re doing because we occasionally meet and I hear your issues, I’m much more willing to cut you some slack than the out-of-state perfect stranger, known only by a loan app, who always seems to have an excuse.
Depending on where they get their money and the rules their lenders/investors impose, as well as the law of course, private lenders are generally free to make the rules up as they go. Who do you think will get the best deals?
With this in mind, you’d be wise to form relationships with many lenders and keep a stable in your back pocket that you can pick and choose from as your deals, and their criteria, fit. The criteria most private lenders use will be as different as fingerprints.
My definition of a banking relationship is a business account with the bank to start out, then a history of successful loan payments.
Some people think it means work with one bank and have dinner and cocktails with an employee of the bank--personally I don't think that.
I think unless you are one of the banks "High net worth" clients using that service, your interest rate and terms will be about the same flexibility as another borrower with your experience, and credit rating and financial picture.
I think the "Old Buddies" system of granting credit went out with the Horse and Buggy, replaced by the computer.
Not to say that ABC Lenders might not be more flexible on terms, or willing to cut you deal on some other aspect of the loan if they really need to make the loan, or it serves some civic purpose (maybe neighborhood revitalization, etc..).
It seems to me the computer is going to dictate the terms and policy (not personal friendship with an employee) and will dictate allowable modifications.
If I am wrong on this, BANK LENDERS let me know.
I am talking about Bank relationships here, vs Hard Lenders or Independent Brokers.
Just my 2 cents.
The Old Buddies system of Loans: https://www.youtube.com/watch?v=fqE9TS4jsJM
- Member since 2018 · 23 posts · 13 votes3yHey Scott, what you described is a roundabout way of saying what I thought, it's mostly business/numbers not the personal relationship with a person from the bank.
Quote from @Scott Mac:
My definition of a banking relationship is a business account with the bank to start out, then a history of successful loan payments.
Some people think it means work with one bank and have dinner and cocktails with an employee of the bank--personally I don't think that.
I think unless you are one of the banks "High net worth" clients using that service, your interest rate and terms will be about the same flexibility as another borrower with your experience, and credit rating and financial picture.
I think the "Old Buddies" system of granting credit went out with the Horse and Buggy, replaced by the computer.
Not to say that ABC Lenders might not be more flexible on terms, or willing to cut you deal on some other aspect of the loan if they really need to make the loan, or it serves some civic purpose (maybe neighborhood revitalization, etc..).
It seems to me the computer is going to dictate the terms and policy (not personal friendship with an employee) and will dictate allowable modifications.
If I am wrong on this, BANK LENDERS let me know.
I am talking about Bank relationships here, vs Hard Lenders or Independent Brokers.
Just my 2 cents.
The Old Buddies system of Loans: https://www.youtube.com/watch?v=fqE9TS4jsJM
Others are saying terms can be changed based on the history relationship with a Lender, so there's that I suppose. - 3yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Dan Williams:
Hello All,
Background
- I own 13 SFH all with conventional mortgages.
- Currently, our LTV across all properties is 40%.
- No experience with portfolio loans or commercial lending, educational awareness from Podcasts and Books only.
DescriptionIn many podcasts I've heard establishing a relationship with a Bank or Lender is critical when scaling. I do not understand why having one with a Bank or Lender is important. To me, Lending is a business transaction and if you have the capital, business processes, and accounting to show a Lender you are worthy of obtaining a loan isn't that what matters? It just seems like any Lender would be willing to finance a deal if the deal is good and you have adequate capital. One of the big reasons I can see a relationship with a Lender being more critical is if you are leveraged to the hilt and it's risky to lend you money. While being leveraged to the max may speed up growth; it seems like poor business practice.
My question is:
. - Does my Lending relationship mostly matter if my LTV is risky?
- Wouldn't most Lenders want your business if you have a higher LTV like 40-45% and adequate reserve capital? Thus less importance on Lending relationships?
Thanks in advance,
DanBanking relationship makes sense if you have all your business accounts tied in the same bank or CU. They will give you better rates and terms because they are making money off what you have in their accounts.
They also make sense in the private money, hard money and non qm space, although not with a bank. A broker will help you scale quickly since they have several lender relationships already. There have been many instances where banks have turned down some of my clients.
LuxePrivate Investments LLC 572 Reviews - Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Greg Scott:
Yes, it absolutely matters.
A couple months ago we were getting debt quotes for a large apartment purchase. Our normal lender had higher interest rates and tougher terms than other lenders. When they found out they might lose our business, they sharpened their pencil and beat everyone else. That saved us thousands of dollars every year in interest and we got to work with a team we like.
Curious, what exactly is the "business" they were going to lose. Is it just your loan portfolio or are they wanting a set dollar value kept on deposit with them as well?
Honestly, it would leave a pretty bad taste in my mouth that they only gave you a better deal when they realized someone else was beating them. Way to roll out the red carpet on the way out. I'd probably have just left regardless.
- 3yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
Quote from @Travis Biziorek:
Curious, what exactly is the "business" they were going to lose. Is it just your loan portfolio or are they wanting a set dollar value kept on deposit with them as well?
Honestly, it would leave a pretty bad taste in my mouth that they only gave you a better deal when they realized someone else was beating them. Way to roll out the red carpet on the way out. I'd probably have just left regardless.
This was not a bank so we had no deposits with them. This was an Agency debt lender. They were at no risk of losing the loans on our other two properties. They just wanted to also be the lender for our most recent acquisition, a $25M loan.
I have no doubt that we got a better debt deal than most others looking for a similar product at that same time.
- Member since 2019 · 74 posts · 54 votes3y
Lending relationships are critical. At the very least have a relationship (deposits) with one or two banks. And everyone speaks about 'banks' as if they are all the same one very important differentiator is what happens to your mortgage after you close and what is that bank's source of funds. I.e. do they sell or hold your mortgage and do they have deposits to fund loans or mainly through sales. Construction loans are hard to sell so mainly need a depositary bank.
We're hard money lenders - not for every loan - I see us just as one more tool in the toolkit - and when you need to close in 10 days or there is an issue with the property that prevents conventional financing we are there to help.
So make sure you have a local private lender / hard money lender in mind as well just incase.
- Lender · CA · Member since 2018 · 638 posts · 393 votes3y
Quote from @Dan Williams:
Hello All,
Background
- I own 13 SFH all with conventional mortgages.
- Currently, our LTV across all properties is 40%.
- No experience with portfolio loans or commercial lending, educational awareness from Podcasts and Books only.
DescriptionIn many podcasts I've heard establishing a relationship with a Bank or Lender is critical when scaling. I do not understand why having one with a Bank or Lender is important. To me, Lending is a business transaction and if you have the capital, business processes, and accounting to show a Lender you are worthy of obtaining a loan isn't that what matters? It just seems like any Lender would be willing to finance a deal if the deal is good and you have adequate capital. One of the big reasons I can see a relationship with a Lender being more critical is if you are leveraged to the hilt and it's risky to lend you money. While being leveraged to the max may speed up growth; it seems like poor business practice.
My question is:
. - Does my Lending relationship mostly matter if my LTV is risky?
- Wouldn't most Lenders want your business if you have a higher LTV like 40-45% and adequate reserve capital? Thus less importance on Lending relationships?
Thanks in advance,
DanI think this is a great question. If all your lender does is help you close one transaction then you are absolutely correct that a relationship with that lender does not matter. However, when we work with clients we are typically doing multiple things. We are advising, helping clients ensure they are doing their due diligence well, then we are also shopping for their loans since we work with over 100 different lenders, then we are saving the client's file and building out multiple scenarios to ensure that they are able to qualify for not just one but multiple different loans and do not back themselves into a lending corner where they no longer qualify for new loans. We stress the importance of relationship because we are not looking for one off transactions with random clients, but rather we are looking to deliver premier service to our clients and find the best products while giving sound advice. Despite being a smaller brokerage, we are also licensed in many states so we can help clients in a lot of different markets. I realize this is sounding like a sales pitch, but a good lender is probably one of the most important members of your team in your real estate journey in my opinion. Lastly, as far as risk, I have a ton of thoughts on risk, but ultimately the true definition of risk, to me, is lack of information. I do not believe that higher or lower leverage is risk, the real risk is the lack of information/knowledge about the market, trends, codes, permits, tenant laws, accounting, etc. and all things that could impact your personal real estate business. There is a great investor I listened to, whose name is escaping me, and he talked about people's "sleep number". He defined it as: if your investments, real estate, loans, leverage, etc. are keeping you up at night, you are outside your sleep number/risk profile and likely need to tone it back. That number is going to be different for each person. I have a few properties that are or were at 90+ LTV and I think one that is at 110% LTV. I sleep like a baby, because they are still cash flow positive, very steady, and have been great investments for me personally. Hope this helps!
- Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes3y
@Dan Williams yes and no. Relationships are a crucial key to success in this business but not the end all be all in terms of lending. Rates, terms, depository relationships play a part as well. Also, sticking with one lending option/institution limits you as banks only offer the products they originate. Its always good to shop, have a broker in your pocket and look around for every loan that you do.
In terms of portfolio lending, most banks/lenders are not offering this product as they are unable to sell portfolio loans on the secondary market. Some lenders have them but prepayment penalties are stricter.
Side note, how do you have 13 conventional loans when the limit is 10?
- Member since 2018 · 23 posts · 13 votes3y
Quote from @Jonathan Taylor:
@Dan Williams yes and no. Relationships are a crucial key to success in this business but not the end all be all in terms of lending. Rates, terms, depository relationships play a part as well. Also, sticking with one lending option/institution limits you as banks only offer the products they originate. Its always good to shop, have a broker in your pocket and look around for every loan that you do.
In terms of portfolio lending, most banks/lenders are not offering this product as they are unable to sell portfolio loans on the secondary market. Some lenders have them but prepayment penalties are stricter.
Side note, how do you have 13 conventional loans when the limit is 10?
Hey Jonathan,
They are split between myself and my wife. 1 Duplex is paid in cash, technically it's 9 SFH and 2 duplexes that make up the 13, but it's easier for me to just say 13 SFH. That's 10 Conventional loans (split between my wife and me) on 11 Units (9SFH 1Duplex) and a cash purchase on 2 Units(1Duplex).
Dan - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Jeff S.:
As important, @Dan Williams, what will happen if/when you run into an issue with a property and need an accommodation? Bank of America couldn’t care less, but the private lender you have lunch with even a few times a year, and with whom you know personally, will be more likely to help you out.
If I see that you know what you’re doing because we occasionally meet and I hear your issues, I’m much more willing to cut you some slack than the out-of-state perfect stranger, known only by a loan app, who always seems to have an excuse.
Depending on where they get their money and the rules their lenders/investors impose, as well as the law of course, private lenders are generally free to make the rules up as they go. Who do you think will get the best deals?
With this in mind, you’d be wise to form relationships with many lenders and keep a stable in your back pocket that you can pick and choose from as your deals, and their criteria, fit. The criteria most private lenders use will be as different as fingerprints.
this was the point I was going to make as well Jeff beat me to it.. Bank relationships are really important when things go south. for most mom and pop land lords with 5 to 30 homes or doors or whatever and fixed 30 year debt.. probably does not matter.. but for those of us that do other things like Development Building credit facility with bank that is used to lend private money etc.. when things turn thats when you need a great banker in your corner.
My main banker I have been with since 94. and I can tell you without him and the owners of the small commercial bank I would have never gotten through 08 to 2012. We would have had to BK big bank would have pulled the plug these guys went to bat for use when the regulators wanted them to hammer us. And then coming out of it I was the first developer they gave horizontal loans to and that has led to me building over 250 new homes in the last 10 years.. And if I would have had to use private money for those deals I would have paid double or more in interest carry and points. Banking relationships are important however it is wise to have several. As much as I want to give my banker all of my business there are scenarios where they just aren't competitive. I don't always shop for rate, because I know my main banker can close within 20 days without breaking a sweat. However there were times where the underwriting guidelines seemed to be a moving target. Last year they told me they weren't doing any more retail because that portion of their portfolio was full. Some banks won't lend outside of certain region. Others change their risk profile on a dime if they hear bad news. My main banker says we can do whatever I want as long as the loan size is under $500k. Anything over that it gets kicked around in a meeting and scrutinized to death. Bankers want your business but they are all a bit quirky and you just need to understand their underwriting guidelines. The good news is that my main banker just waived the origination fee on a loan I am currently doing because of my long standing history with them.
- Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes3y
Quote from @Jonathan Taylor:
@Dan Williams yes and no. Relationships are a crucial key to success in this business but not the end all be all in terms of lending. Rates, terms, depository relationships play a part as well. Also, sticking with one lending option/institution limits you as banks only offer the products they originate. Its always good to shop, have a broker in your pocket and look around for every loan that you do.
In terms of portfolio lending, most banks/lenders are not offering this product as they are unable to sell portfolio loans on the secondary market. Some lenders have them but prepayment penalties are stricter.
Side note, how do you have 13 conventional loans when the limit is 10?
Came here for your side note question -- sounds like a great relationship to have if they are offering conventional rates with 10+ financed properties!
- Member since 2018 · 23 posts · 13 votes3y
Quote from @Tyler Warrick:
Quote from @Jonathan Taylor:
@Dan Williams yes and no. Relationships are a crucial key to success in this business but not the end all be all in terms of lending. Rates, terms, depository relationships play a part as well. Also, sticking with one lending option/institution limits you as banks only offer the products they originate. Its always good to shop, have a broker in your pocket and look around for every loan that you do.
In terms of portfolio lending, most banks/lenders are not offering this product as they are unable to sell portfolio loans on the secondary market. Some lenders have them but prepayment penalties are stricter.
Side note, how do you have 13 conventional loans when the limit is 10?
Came here for your side note question -- sounds like a great relationship to have if they are offering conventional rates with 10+ financed properties!
They are split between myself and my wife. 1 Duplex is paid in cash, technically it's 9 SFH and 2 duplexes that make up the 13, but it's easier for me to just say 13 SFH. That's 10 Conventional loans (split between my wife and me) on 11 Units (9SFH 1Duplex) and a cash purchase on 2 Units(1Duplex).
Having said that, the limit is 10 per person. I made sure on our financing we did them individually. Only on 2 properties did we do joint financing.
- Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes3y
Yes, it is important to have these relationships. Two main reasons are speed and flexibility.
If you are buying standard turnkey properties and putting down 60% and the seller is willing to wait 30 days or longer then it might not matter. However; if you are buying properties that are in disrepair and need substantial rehab and their are multiple buyers you will need a relationship with a banker who will move quickly so you can get the deal done first. Also sometimes properties take longer and cost more than expected to renovate or build, that relationship can allow you to finish on time without too many delays.
Again, if you are buying turnkey properties with hefty down payments then maybe not so much.
- Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes3y
Quote from @Dan Williams:
Quote from @Tyler Warrick:
Quote from @Jonathan Taylor:
@Dan Williams yes and no. Relationships are a crucial key to success in this business but not the end all be all in terms of lending. Rates, terms, depository relationships play a part as well. Also, sticking with one lending option/institution limits you as banks only offer the products they originate. Its always good to shop, have a broker in your pocket and look around for every loan that you do.
In terms of portfolio lending, most banks/lenders are not offering this product as they are unable to sell portfolio loans on the secondary market. Some lenders have them but prepayment penalties are stricter.
Side note, how do you have 13 conventional loans when the limit is 10?
Came here for your side note question -- sounds like a great relationship to have if they are offering conventional rates with 10+ financed properties!
They are split between myself and my wife. 1 Duplex is paid in cash, technically it's 9 SFH and 2 duplexes that make up the 13, but it's easier for me to just say 13 SFH. That's 10 Conventional loans (split between my wife and me) on 11 Units (9SFH 1Duplex) and a cash purchase on 2 Units(1Duplex).
Having said that, the limit is 10 per person. I made sure on our financing we did them individually. Only on 2 properties did we do joint financing.
Love the strategic planning that went into that. Very smart -- and I can see how it's much easier to simplify it by saying 13 SFH's on conventional loans haha. For those that read this -- make sure to look at the whole thread! Don't pigeonhole yourself by thinking one individual can get more than 10 financed properties with Conventional Loans!
If you still have doubts as to how valuable a banking relationship can be, allow me to give a few recent experiences.
Several months ago, I was looking at a 16 units on a Friday. Verbal bank loan at 4.5% fixed for 10yr using 70% LTV. I conducted a walkthrough and shook hands with the seller on the following Wednesdays at noon. However, that morning at 9AM CA time, Jerome Powell raised another 50 basis points and lending tightened. Lenders scrambled, lowered LTV for that market to 60% max and raised rates to 5.25%. That killed the deal. A few days later, as rate rose to 5.4%, the bank was clearing its files from their desk and noticed my file. The called me at 9PM and said their loan committee willing to make exception and allow for 70% LTV and reduce rate to 4.69%. Deal was back on the table and we closed 45 days later.
Same bank, 3 weeks ago (6 months since the previous episode) gave a verbal rate of 5.85% on another apartment I was looking at. This is a very small deal... list price $850K. I offered $770K. Seller said NO and would not go below $795K. I moved on and looked at other deals. 13 days later, Seller asked if my offer is still on the table. However, rates jumped to 6.4% for that size loan. Lender was willing to back date 2 weeks to honor 5.85%. We are in escrow and should close by end of the month.
That's just a few examples of how important relationships are.
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