Do Lenders Really Know The Overall Real Estate Market?

10 Replies

My group is just starting out on our real estate venture.  We are currently seeking financing for a Chicago 6 family unit that is currently rented.  We are purchasing the property all cash (we discovered that this can be a problem too) because we were running into two main problems when approaching lenders 1. This is our first deal and 2. We are NYC  based.   I expected some lenders to see that we are seeking to maximize our investment dollars by investing in a lower cost city.  You are not getting a 6 family unit in NYC for under $500k.  I had to explain our reasoning in detail to a number of potential lenders.  Which still did not help.  And we are seeking financing for the standard 75% of the purchase price.

Any thoughts on how to tackle this roadblock would be appreciated.  

@Calvin Lipscomb What kind of companies are you talking to in Chicago? I have a couple smaller bank contacts I can share with you that would look at this type of deal. I don't know if I have ever heard of the example you are giving as being an issue so maybe it's worth talking to one of them. 

Originally posted by @Jeff Dulla :

@Calvin Lipscomb What kind of companies are you talking to in Chicago? I have a couple smaller bank contacts I can share with you that would look at this type of deal. I don't know if I have ever heard of the example you are giving as being an issue so maybe it's worth talking to one of them.  

I wish I was exaggerating.  Being out of town buyers and this being our first deal is a real hurdle.  Like anything, it could be the luck of the draw with people we were contact with.  But, if you are aware of lenders with whom this is not a problem it would be appreciated.  We are looking to establish a reliable banking/financing relationship because there are a number of other deals we will be looking at doing sooner than later.   

Originally posted by @Calvin Lipscomb :

My group is just starting out on our real estate venture.  We are currently seeking financing for a Chicago 6 family unit that is currently rented.  We are purchasing the property all cash (we discovered that this can be a problem too) because we were running into two main problems when approaching lenders 1. This is our first deal and 2. We are NYC  based.   I expected some lenders to see that we are seeking to maximize our investment dollars by investing in a lower cost city.  You are not getting a 6 family unit in NYC for under $500k.  I had to explain our reasoning in detail to a number of potential lenders.  Which still did not help.  And we are seeking financing for the standard 75% of the purchase price.

Any thoughts on how to tackle this roadblock would be appreciated.  

 Keep doing your thing, but FYI often commercial financing gets a lot easier once you have one or two residential 1-4 unit properties under your belt. 

@Calvin Lipscomb absolutely keep this post here too but I might try asking this in the Multi-Family forum, maybe the commercial forum, or even just the Illinois forum.  Those will usually get more responses around the subject matter you are looking for on these property types.  Just an idea.  Thanks!

Banks understand that all real estate is local.  If they do not understand the market, regardless of the purchase price, you'll hard pressed to find a non-local lender to fund the deal unless they are Fannie / Freddie sponsored.

Originally posted by @Frankie Woods :

Banks understand that all real estate is local.  If they do not understand the market, regardless of the purchase price, you'll hard pressed to find a non-local lender to fund the deal unless they are Fannie / Freddie sponsored.

 My problem was that many were "questioning" why I would want to invest in the Chicago market.  Many have no idea just how expensive the buy-in throughout the entire NYC is for 6+ units.  Unless you are counting great price appreciation, why spend 700k for a 2 family when I can spend the same 700k for a great 6 family unit in at least a B area Chicago.  This was a stumbling block for a number of potential lenders.  

Originally posted by @Chris Mason :
Originally posted by @Calvin Lipscomb:

My group is just starting out on our real estate venture.  We are currently seeking financing for a Chicago 6 family unit that is currently rented.  We are purchasing the property all cash (we discovered that this can be a problem too) because we were running into two main problems when approaching lenders 1. This is our first deal and 2. We are NYC  based.   I expected some lenders to see that we are seeking to maximize our investment dollars by investing in a lower cost city.  You are not getting a 6 family unit in NYC for under $500k.  I had to explain our reasoning in detail to a number of potential lenders.  Which still did not help.  And we are seeking financing for the standard 75% of the purchase price.

Any thoughts on how to tackle this roadblock would be appreciated.  

 Keep doing your thing, but FYI often commercial financing gets a lot easier once you have one or two residential 1-4 unit properties under your belt. 

 We found short term financing.  We are hoping due to the number of purchases and deal transaction that would  be available we will not have such a difficult time when we have to cash out refinance around April/May of next year.

Originally posted by @Calvin Lipscomb :
Originally posted by @Frankie Woods:

Banks understand that all real estate is local.  If they do not understand the market, regardless of the purchase price, you'll hard pressed to find a non-local lender to fund the deal unless they are Fannie / Freddie sponsored.

 My problem was that many were "questioning" why I would want to invest in the Chicago market.  Many have no idea just how expensive the buy-in throughout the entire NYC is for 6+ units.  Unless you are counting great price appreciation, why spend 700k for a 2 family when I can spend the same 700k for a great 6 family unit in at least a B area Chicago.  This was a stumbling block for a number of potential lenders.  

 Interesting.  I do not quite understand why they would care about your rationale.  Out-of-state investors is not a new concept.  Maybe you are just talking to inexperienced bankers or banks.  I have never encountered a bank who loans in a market I'm investing in ask why I was investing there...other than is it a primary or investment property to establish the risk profile. 

Originally posted by @Frankie Woods :
Originally posted by @Calvin Lipscomb:
Originally posted by @Frankie Woods:

Banks understand that all real estate is local.  If they do not understand the market, regardless of the purchase price, you'll hard pressed to find a non-local lender to fund the deal unless they are Fannie / Freddie sponsored.

 My problem was that many were "questioning" why I would want to invest in the Chicago market.  Many have no idea just how expensive the buy-in throughout the entire NYC is for 6+ units.  Unless you are counting great price appreciation, why spend 700k for a 2 family when I can spend the same 700k for a great 6 family unit in at least a B area Chicago.  This was a stumbling block for a number of potential lenders.  

 Interesting.  I do not quite understand why they would care about your rationale.  Out-of-state investors is not a new concept.  Maybe you are just talking to inexperienced bankers or banks.  I have never encountered a bank who loans in a market I'm investing in ask why I was investing there...other than is it a primary or investment property to establish the risk profile. 

 I can emphatically tell you that was a concern across the board.  And, the fact that we were first timers with no track record did not help as well.  We ultimately came up with a finance and investment strategy for the area to secure property and develop a track record.  When seek to cash out refinance in the spring a number of concerns would have been addressed.  As they say, you have figure out your strategy to get around obstacles and have to keep knocking on doors until you find the one that will open for you.