A friend and I are looking to do some investing in single family homes - involves rehab or new construction.
I've spoken to a few bank lenders, once they know we have little to no experience, it ends there. They're not interested to even consider lending, or in most cases even meeting. One wanted to refer us to "hard lenders" and basically said come back when you have a few projects under your belt.
What should we do?
Find some hard lenders and get some projects under your belt. Banks don't like investors generally.
Developing a track record using HML is one route.
Trying to find private money is another.
Own any large assets? Free & clear RE? Cash out Refi.
Home equity loan in your personal residence.
@Manish A. Do you have money to put down? Have they checked your credit scores?
HML's are great especially for newbies! They will help you evaluate the deal and some will even give you advice! Way better than a bank. So you may have to pay a couple of extra points and some extra interest percents, but if you want to grow into real estate it is just part of the cost of business.
No the lenders I have spoken to did not run any credit info, they basically turned me down over the phone because of lack of experience without inquiring about anything else.
Yes we have a good amount of cash reserves and credit score 800+
If you truly want to grow your business, HML's are the only way in the beginning. you may also find, with the right one, you may stick with them for the long haul. They make the process a lot easier than traditional lenders. The right one will actually act as your partner in a way. Run away from a lender that seems punitive. Get recommendations from other locals about who they have used. Remember HML's are asset based lenders, so their only concern is whether the deal makes sense and that they are protected and you have a good plan.
@Manish A. Sorry to hear about your dealings...Find someone who is willing to JV with you, that has established real estate or credit worthiness. I suggest you JV vs use them as a guarantor; because if you can show them you are willing to follow, learn and listen; plus, share in the wealth with them, they are more likely to consider discussions.
Next, maybe you put more money down and leverage less? Until you get established or known in your area...
Hope that helps some. Best of luck.
@Manish A. you might find a experienced person to partner with on a few deals, since you have credit and some cash with there experience they might consider
@Manish A. Two other issues at play. First, conventional lenders can't lend on distressed, non habitable properties. Second, they have no interest in writing a 30 year loan that will get paid off in 6 months.
Few banks will lend for fix and flip type deals at all. Somewhat more, though still not that many, will lend on buy and hold. The conversation may well have less to do with you being newbies than the bank just not doing this sort of deal.
Hard money is a reasonable choice for fix and flips. Expensive, but HMLs will make this sort of loan where very few banks will. Any sort of partnership or joint venture is probably going to be even more expensive. If you have reasonable credit, cash to cover your part of the deal, and an actual good deal, you should be able to find a HML who will fund you, even as a newbie. Its that "good deal" that often trips up newbies.
@Manish A. I would say that was pretty good advice they gave you.
I'd suggest you are going the wrong way about this.
Find a deal first, a really good one. then put your SOW and all costings together, there's a template for that on here at BP. Once you have a great deal and a good execution plan, things will start happening.
One other thing, you come across as a whiner, so you'd need to lose that.
Good luck with it!
Your advice is appreciated! In this market a "really good deal" doesn't last long, so we were trying to meet with lenders in advance to get a pre-qualification / pre-approval. Is this thinking wrong?
Is this the template you were referring to?
This is not a personal loan. If you have a deal and a plan that makes financial sense, you should have no problem getting funding. Takes a lot of time and effort to put it together and that's your commitment. Until you start doing effective deals, your time is worth very little.
The link you sent looks fine. Us olde guys do the numbers in our heads.
Thanks again for your valuable time.
Are you implying that "pre-approval" doesn't apply to construction loans, only to personal loans?
Also are you implying that one must wait to have a specific deal in place w/ plan before getting any pre-commitment on financing? If that were the case wouldn't one miss out in a competitive market where good deals go quick?
One of the first things I did when I started was getting pre approved with two HML's and then started marketing for deals and going shopping.
Good deals will be funded quickly and easily IMO. Having a good SOW completed and shopping for bids during the closing period will speed things along as well. My flips have a demo crew on site the day after I close most of the time. My point is like others have stated here is that you need your plan of action so that you don't lose time that will eat away at your profits also known as "holding costs".
Having a contingency for construction over runs and reserves if things don't go as planned is part of a good action plan.
What I'm saying is that you the borrower are just half the picture. The other half is the deal you're running with. It's very hard to assess one without the other and a high number of newbie deals fall apart in the execution process. For wherever you're going to be in this business, deal presentation is a fundamental. Would you ask someone to watch half a movie? Really?
If you have a good deal with an profitable and executable plan you won't have any problem getting hard money funding. It's how private investors get a decent return over leaving it rotting in the bank or risking it on Wall St.
The money will be cheaper from banks than HMLs, but harder to get. If you want to pursue that option, focus your attention on small local banks that do commercial loans and try to strike up a banking relationship.
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