I don't have a deal "in the works" just yet. I have a potential investment property in mind that I'm investigating. I've never done a deal before. Does anyone have any advice on how I may go about building relationships with prospective lenders (HML, private, partners) at this super early stage of my REI career? How do I start a conversation with a lender? What questions should I ask?
@Jason Unrath Welcome to BP Jason! Any reason you didn't mention local banks? For buy and hold, that's probably your cheapest money and longest terms. Open a checking / savings account there and talk to their lending department. If you purchase a rental, have the rent deposited at that bank, and then when the next property comes along, it's much easier as they can verify rental income easily.
If you're looking for more fix and flip, attending local REI meetings is a good start.
Hi @Jason Unrath ...Not knowing what if your focus is rehab & flip or buy & hold, I'll keep my comments somewhat general. Here are a few things to take into consideration.
- Lending institutions that cater to investors often do both HARD MONEY & PORTFOLIO LENDING. Also, most are somewhat aggressive in earning your business so there is nothing wrong with reaching out to them; letting then know you are new to investing and then inquiring about the products they offer. I have experienced that often the more experience you have the better the terms get over time.
- I have the firm belief born out through experience that the best private money relationships are not "transactional" relationships. The most flexible terms comes from those private money investors that I actually like to be around. Often private money lenders can turn into equity partners when the situation calls for it.
I'm happy to discuss further with you over the phone phone if you like. It's best for me since I don't often have the time to write long novels on BP forums. ;-)
Private message me or text me at my number below and we'll set up a time to talk.
@Tom S. I was thinking more in terms of utilizing the BRRR strategy. I don't have enough cash on hand to fund a purchase AND a rehab, so a HML is probably a better starting point. Then, I could refinance with a bank for a 30 yr loan. Thanks for the bank tip, though
House hack. Use a 203K loan to fund the purchase and the rehab and live in it for a little while. Get used to being a landlord with a multi family property.
If that doesn't work for you, get a hard money lender to go 80% of the purchase with 100% of the rehab covered (you do the work first and get reimbursed). Then either cash out using the appraised value after 6 months from purchase date (there's a seasoning period) or go with a portfolio lender that has no seasoning requirement.
Welcome to our world!
I did a google search for all the local banks in my area and sent emails to everyone explaining what I wanted to do (BRRRR), with a little more detail, and waited for responses to see if any of the lenders had interest in my plans.
I would recommend to just start reaching out and explaining your path. Some will come back and offer their own criteria but there will be a few lenders that can offer you referrals to others in the business that can help you reach your goals.
Best of luck!
@Jason Unrath Great post ! Usually hard money lenders and private money lenders want to see experience and some skin in the game. If you don't have experience, find someone local who is to partner with you. If you don't have capital, do the same thing - find a partner who has cash to put down as skin in the game.
As long as you have an LLC or Corp on Title, and within that corp you have someone with experience and someone who has cash to bring down, then you should be able to get approved easily.
Some lenders, like RCN can lend on 1st Time flippers, but they need at least 20% down payment towards purchase
My dad gave a presentation on that a while back you might like watching (don't worry, we're not selling anything): https://www.youtube.com/watch?v=McmwwvLiHFA
@Jason Unrath Great question. There are a lot of private money lenders in the industry. They all have different guidelines and subtleties that can make or break a deal. Building relationships with a few early on in your investment career would set you up for success as you become more experienced. Like @Manuel Angeles mentioned, private money lenders tend to want to see experience for them to originate a loan for you. There are private money lenders that will lend to you with no experience. Much of the time little to no experience just means a slightly higher rate. However, the more you build relationships with your lenders, the more they are willing to go up to bat with their underwriting teams to get you qualified with better pricing.
Lender always welcome clients in early stage of mortgage pre-approval. The reason being to prepare them ahead of time for pre-approval if there is any problem in their loan scenario. Talk with couple of lenders and see who will be good fit for you.