What happens when my portfolio lender says, "No more loans."

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What happens when my portfolio lender says, "No more loans."

Michael Wentzel
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes

I've been working with a regional bank for about a year and half. I have one property on a 30-year fixed with Fannie Mae. Then I've done three more properties on portfolio loans with the branch president of this regional bank over the last 9 months. He said he would do two more and then we wants to wait six months to a year for the portfolio loans to "season" before doing more. 

I finally have my systems in place and would like to acquire 6-8 more properties this year, but this is putting a hitch in the plan. Can I just shop around for other portfolio lenders and have them do 4 or 5 for me? I hate to split my business/ loyalty. Should I just slow down and wait six months to a year? That's probably not going to happen.

Any wisdom and insight in this area?

Mike

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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Just sounds like the branch president is doing a CYA.

They want to show they didn't let you run wild so if something imploded later they wouldn't be seen as grossly negligent.

Employees and board of directors at banks worry about their jobs and facing criminal charges if a bank goes belly up down the road.

The bank is demonstrating prudence.  

"He said he would do two more and then we wants to wait six months to a year for the portfolio loans to "season" before doing more."

You have shown you can keep the car in lane going 60 miles per hour. The bank is saying they want to wait and see if you are a good driver over time before increasing the speed. You want to floor it and see how far down the road you can get. A lot also has to do with the size  and growth of the bank. Some are in "growth mode" and some are in "rate mode" for loans at their bank.

If you go to another bank and someone asks why so many so soon?? You could say you watch the investment cycles of different asset classes and with low interest rates want to lock in as many at a low price while you can. Then when the market gets frothy you can be more selective and buy less properties only when the numbers work in an overheated market. 

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  • Daniel Mohnkern
    Investor · Titusville, PA · Member since 2015 · 298 posts · 150 votes
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    In my opinion, you would not be splitting your loyalty.  Your lender, whether rightly or not, is the one who can no longer help you.  What can he expect?  Business is business and you need to keep business going when he no longer can.  Whether or not you should proceed for your own risks and wisdom is an entirely different question.  Only you can decide how fast is too fast.  Terms available can significantly affect that division.  For instance, I would go as fast as possible with 30 year fixed loans, but might think twice with balloons.

    4Reply
  • Ryan Dossey
    Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
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    I agree with the above poster. I would explain to him that you have a system in place to acquire 6-8 homes in this year. That being said if you can't do that through them you will have to take your business elsewhere. They may change their tune. They may not. Most banks if you have good preforming loans and significant reserves they will keep working with you.

    3Reply
  • Robert Sepulveda
    Lender · Newport Beach, CA · Member since 2013 · 264 posts · 97 votes
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    Many portfolios don't mind how many financed properties you have in your pool of properties. However, they do place a limit on how many properties you can finance with them. This is done purposely so that you do split your loyalty (and spread the risk) across multiple lenders. Most I'm aware of will let you finance 10 properties with them no matter how many other financed properties you have elsewhere.

    Line up other portfolio lenders that fit your needs so you exercise you plan and make it a successful year.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    11y

    Just sounds like the branch president is doing a CYA.

    They want to show they didn't let you run wild so if something imploded later they wouldn't be seen as grossly negligent.

    Employees and board of directors at banks worry about their jobs and facing criminal charges if a bank goes belly up down the road.

    The bank is demonstrating prudence.  

    "He said he would do two more and then we wants to wait six months to a year for the portfolio loans to "season" before doing more."

    You have shown you can keep the car in lane going 60 miles per hour. The bank is saying they want to wait and see if you are a good driver over time before increasing the speed. You want to floor it and see how far down the road you can get. A lot also has to do with the size  and growth of the bank. Some are in "growth mode" and some are in "rate mode" for loans at their bank.

    If you go to another bank and someone asks why so many so soon?? You could say you watch the investment cycles of different asset classes and with low interest rates want to lock in as many at a low price while you can. Then when the market gets frothy you can be more selective and buy less properties only when the numbers work in an overheated market. 

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    5Reply
  • Chris Simmons
    Real Estate Agent · Owasso, OK · Member since 2014 · 517 posts · 400 votes
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    Joel is right.   As a lender I am familiar with these rules and policies.  My bank won't even finance residential real estate for investment purposes on it's commercial side anymore due to the losses from the last downturn so be glad you found one bank that would.  

    After you grow a certain amount, the number of loans won't be the issue, it will be the cumulative loan asset balance on their books.   If it is a small regional bank, you might be done after $2 million or so.  Banks can only have certain amounts lent out to certian industries, certain borrowers etc.  No one borrower or industry can represent too large a position on their balance sheet in case things go bad.  They don't want one customer or industry to sink the ship.  

    As a borrower, I can assure you that you don't want all your eggs in one basket anyway.  Just like they don't want too much concentration with one borrower or industry, you should not want too much concentration with one lender.  One change in lending policy, the sale of the bank or even one small matter of default with you and this one bank could bring all the dominoes down quick.  

    Get big enough to keep a bank interested and competitive and then reach out for another relationship every so often.  When everyone knows that everyone else has options, everyone gets treated better.

    5Reply
  • Stan Butler
    Investor · Roswell, GA · Member since 2008 · 231 posts · 104 votes
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    My opinion on this @Michael Wentzel is that your system for acquiring properties needs to include multiple options in all areas.  You should have multiple contractors, closing attorneys, insurance agents, material suppliers and lenders.  I have 4 portfolio lenders that I use and there are times when 3 of them are not writing any loans.  Also, these small community banks are acquired regularly and the guidelines and standards will change.  Same goes for contractors in case your primary is busy on another project.

    0Reply
  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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    Yeah one of my clients is fixing to assume a 7 million construction loan from a bank that has a cap of 3 billion being bought out by a bank with a cap of 13 billion.

    The larger bank is in growth mode.

    I see these smaller banks in a state of flux and constantly adapting. Even the big banks now with looking at heftier reserves and regulation are changing their business models. So you just have to go out and pound the pavement and see which bank is looking to do your type of loan today.

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    0Reply
  • Bill Clark
    Fenton, MI · Member since 2015 · 1 post · 0 votes
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    I have been investing into real estate for 28 yrs and bank lending should be the least of your worries.  There are several different ways of buying real estate with out banks.  Unless your flipping banks will set you up for failure.  

    0Reply
  • Jerry Padilla
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
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    @Michael Wentzel  You can get up to ten mortgages with no set timeline. 

    0Reply
  • Angel Gracia
    Rental Property Investor · Guam · Member since 2015 · 21 posts · 2 votes
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    Originally posted by @Bill Clark:

     Unless your flipping banks will set you up for failure.  

     Why do you say this?

    1Reply
  • Michael Wentzel
    OP
    Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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    Once again, I appreciate the insight from experience investors and lenders who are way ahead of me. I've come up with a list of 4-5 local portfolio lenders recommended to me by local investors. I also have a couple lenders who have contacted me on BP. So I'll extend a phone/ email to all of them, follow-up 2 or 3 with a visit or longer conversation and go from there.

    Mike

    0Reply
  • Michael Smith
    Real Estate Broker · Greenville, SC · Member since 2013 · 269 posts · 141 votes
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    You don't need to find a new portfolio lender until you reach a total of 10 financed properties, since FNMA allows up to 10. Just use a mortgage bank that underwrites directly to FNMA guidelines.

    0Reply
  • Craig Montesano
    Investor · Northwest, PA · Member since 2013 · 107 posts · 24 votes
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    My local portfolio lender has been great with me....We financed 3 properties through fixed rate conventional mortgages then we went on the commercial side and have done about 7 ARMs. WIth his help we have grown from 0 to 16 SFH in just under 3 years.

    2Reply
  • David Terjak
    Investor · Cave Springs, AR · Member since 2014 · 4 posts · 0 votes
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    @Craig Montesano I'm looking to purchase a property in western PA and already have 5 rentals so it's tough to find lenders. Would you mind sharing your portfolio lender?

    0Reply
  • Michael Wentzel
    OP
    Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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    @Michael Smith It isn't a matter of them being unable to go up to 10 properties. The issue is that the portfolio lender has done 5 loans for me in about 12 months. I don't have a long track record, so he wants to sit on the portfolio for 6 to 12 months to make sure it performs as I project it to perform. I don't want to wait, so I'll be looking for a second portfolio lender to do a few loans for me until the first one is ready to come back in the game.

    @Craig Montesano It is encouraging to know that there are great portfolio lenders out there. I didn't do much shopping around when I started using commercial/ portfolio lending 12 months ago. Now I know what to look for and I have a good track record. So I hope to find one like you have found back in Pennsylvania.

    Mike

    0Reply
  • Michael Smith
    Real Estate Broker · Greenville, SC · Member since 2013 · 269 posts · 141 votes
    11y

    @Michael Wentzel what I'm saying is any non-portfolio lender who sells to FNMA and underwrites without overlays can do your next 5 loans right now without having to wait. Then for #11 you can look for a new portfolio lender if your first one isn't ready to lend again yet.

    0Reply
  • Eric Taylor
    Investor · Mission, TX · Member since 2014 · 117 posts · 40 votes
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    It is kinda like a stop sign.   I would pause, review my holdings and debt, redo my calculations, and proceed based upon what the data says.

    0Reply
  • Michael Wentzel
    OP
    Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
    11y

    @Michael Smith I see. I get what you're saying now.

    @Eric Taylor It is definitely a good time to pause and see where we are at and where we want to go. I just don't want to pause too long.

    Thanks guys.

    Mike

    0Reply
  • Michael Smith
    Real Estate Broker · Greenville, SC · Member since 2013 · 269 posts · 141 votes
    11y

    @Michael Wentzel I just got done with a long post about Conventional loans, you should check it out:

    http://www.biggerpockets.com/forums/49/topics/184876-the-ultimate-guide-to-using-conventional-mortgages-to-expand-your-portfolio

    0Reply
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