Banker told me SFH rentals are as bad as printing companies

43 Replies

I met with a small local bank this week working to refi some SFH rentals that are paid for in cash.

This banker told me that some report he gets just came out and said that SFH rental properties are one of the worst investments... the only other poor investment it mentioned were printing companies.

Now we all know why printing companies are not a great investment, but why did he say this about SFH rentals?

The only thing he could justify his comment was that we don't know where the market will go with SFH due to development in the Columbus, Ohio area. This seems like a slim reason to call these rentals a bad investment.

He was very upbeat about lending on 2-4 unit properties, but not SFH's.

Can anyone shed some light on his thinking?

Originally posted by @Joe B.:

No offense to your banker... But he works 40 hours a week in a cube, wears a suit and makes less money than most of the subs you hire...

 To be fair he does work bankers hours. 

I've learned to only take advice from people who are where I want to be. Otherwise I take it with a grain of salt.

The way that he thinks is exactly why he's a banker and not an investor.

John Horner Maybe the article he read is a HBR article and has insight you don't have ... Maybe it's from Huffington Post.

Did you ask which article he was referring to?

I think it was an onion.com article referencing the huffington post, actually. Did you ask him how many rental units he has? I've learned that unless you're doing what I am doing on a 10x larger scale than me then your opinion isn't worth a whole lot if it's a direct contradiction to my own. 

5 years ago a real estate attorney told me housing will never come back. Ummmm.... Wrongo!!! 

Let the bankers do what they do best. Ahhh... Whatever that is...

Know your market. Know the net migration. Know the job outlook. Know if there are more new building permits. Know if prices are raising.

Don't worry about what others say, know the facts.

@John Horner   not sure about printing business.. I sold my last personal residence to a local business owner who owned printing company.. he paid cash  ( 7 figures) and he still owned his other home free and clear and it was worth property 750k.

I can see where bankers would think this... did we just not go through a housing and debt crisis.. we seem to have short memories..  and remember 50% of all foreclosures were landlords who lost their butts and walked... Just think of all the houses you buy they are not all from little old ladies moving to the pearly gates.. Or sub prime blow ups... landlords are very vulnerable to losing their properties and the bankers know it.

Seriously though - the guys job should play no role in the discussion, the only reason it does is because you're going through him for financing.  There are two types of people - those who believe whatever they read or are told, and those who strive to find the truth for themselves.  Don't waste time on the former.

If you can't loan through him just talk to someone else.  There are more than one co-op bank options in most any state :)

I'm a banker and an investor. I don't take dermatology advice from a mechanic or pluming advice from a doctor. He doesn't know RE investing if he can give you some solid reasons why he said that.

if he cant give you some solid reasons why he said that.

Correction: Can't

My experience as a banker and real estate investor tells me that MOST (probably 80%) of bankers Don't know real estate investing like the people on this site.

Originally posted by @Jay Hinrichs :

@John Horner  not sure about printing business.. I sold my last personal residence to a local business owner who owned printing company.. he paid cash  ( 7 figures) and he still owned his other home free and clear and it was worth property 750k.

I can see where bankers would think this... did we just not go through a housing and debt crisis.. we seem to have short memories..  and remember 50% of all foreclosures were landlords who lost their butts and walked... Just think of all the houses you buy they are not all from little old ladies moving to the pearly gates.. Or sub prime blow ups... landlords are very vulnerable to losing their properties and the bankers know it.

 Printing company was pretty obvious to me.  Think of all the publications that now sell online subscriptions rather then physical newspapers or magazines.  Also companies like vistaprint eating the smaller guys lunch with fast cheap products.

I used to work for a small custom printer, and they are almost non-existent now due to the fact that they used to do exactly what vistaprint does now.

@John Horner I have heard similar statements before. What they referred to was plain asset appreciation. They compare - whatever number they use, maybe 2% - with interest on a savings account. Basically assuming that you invest 100.000 cash to make 2% in appreciation, which then gets eaten up by the realtor fees when you try to "cash out".

A slight simplification leaving out discount at purchase, value ad remodeling, leverage and OPM, depretiation, principal pay down and .. oh yeah cash flow. 

Sounds like boiler plate advice aimed at a new person getting started and buying at retail.  Does he know anything about demographics?  Collateral?  Credit? Character of the borrower?  You're obviously not new or buying at retail hoping for easy money.  Congrats on having paid-for RE, btw!

If they are only lending at 75% LTV like most banks on investment property and staring at 76 million folks nationwide in their 20s that haven't formed households yet....are you kidding? If he is the mouthpiece for their underwriting, sounds like his bank may be more like the printing industry @John Horner !  

I semi agree with your banker. I had 60 properties in good areas and I sold 30 sfh because it was too much work for the money that I was getting. Yes, I had my MGMT Co managing them, and my employees doing repairs, etc. Still we didn't cash flow $500/month after all expenses were paid from each house, because each our property cost 130-150k after the rehab was done.

In my opinion, if you don't get $500 in cash flow after all expenses are paid, sfh is not an asset, it's a liability, because you always will need to spend money to replace ACs, furnaces, water heaters, carpet, paint, appliances, etc. And if you only get $200-$300 in cash flow per month from each unit, where will you get the money to pay for the repairs and vacancies?

In my opinion quads are the best, where people would pay almost the same rent as per singe family unit, but you only have to deal with one property (one roof, etc)

Then 3 -plexes and duplexes. I agree SFH are the worst, unless you buy them in getto for 12k for cash and cash flow $500/month and they pay for themselves in 2 years and then your return is infinite. But I only want to deal with properties in good areas that attract better tenants. I'm looking at my friend that has 70 houses in getto, he gets sued every month. Yes, he gets great cash flow. Does he like to get sued every month? No. But he decided that it was the best avenue for him to become rich

My banker here in Florida recently asked me to run "My Analysis" for him on a property he owns and rents. "My Analysis" is the Bigger Pockets Rental Property Calculator! 

As it turns out, he and his wife wanted to dump the rental. After seeing the numbers he realized this rental house was the best performing investment he owns. We need to quit telling all these people about REI'ing! lol

Keep doing what you are doing and find a banker that understands REI'ing or simply believes in you. Then ask them to fund the next deal!!

Originally posted by :

I can see where bankers would think this... did we just not go through a housing and debt crisis.. we seem to have short memories..  and remember 50% of all foreclosures were landlords who lost their butts and walked... Just think of all the houses you buy they are not all from little old ladies moving to the pearly gates.. Or sub prime blow ups... landlords are very vulnerable to losing their properties and the bankers know it.

I personally know of so many new LLs who lost property during the Bubble.  Stated income was a thing, even for $500K houses with $2000 rents.  Everyone thought they were qualified to be a LL, many high earners had savings and IRAs to use for downs.  It was negative cash flow and a pipe dream from the get-go. 

So while a lot of bankers don't know anything about the rental business, many did see a lot of loss....that they lent on. That being said, never take advice from people who just spout ideas from articles. Why compare only SFH rentals and printing businesses? What about restaurants? :)