Not All Lenders Are The Same

The lending portion of real estate is such an important part of the business. We focus on structuring. We focus on how to bring in equity. The equity’s an important component, but now we really have figured out who’s going to come in with the lion’s share. It’s typically the debt. So for most deals we see, there is usually a pretty strong debt component. About anywhere from 75% to about 50% of the project usually comes in with some component of debt. You’ve got your lender, you got somebody who’s lending you the rest of the money, and they're not in it for the ride with you. They’re in it for loaning you money to get a guaranteed return on an interest rate for them, and they have an asset that is there, their collateral to some extent. So they’re not all the same.

There are many, many forms. What I would say is one of the things that we focus on and I see what people really look at. When they look at a lender, they look at a few things. One, they look at what the interest rate is that they’re charging them. Two, how long of a term or what kinds of terms were they giving them and how much money are they giving you? When they get past those three thresholds, oftentimes they’re viewed in the same bucket. They’re all about the same, which isn’t really the case.

One lender offers you $2 million at a 5% interest rate for 20 years fixed. Same thing with the other. But, they're not the same. There are lots of things that go into it. If you look at that, you say that’s the kind of the component that I would say getting past the first three big steps of staying, “What are the terms? Now, what or who is lending you the money?” Typically, I look at this and say there are three or four main areas that people are getting money from right now the multifamily space.

Conventional leading is what most people know about. They have a Chase bank account, they have a Wells Fargo bank account. Whatever big bank that they bank with, they might assume that that's where they go to the first time. So conventionally, you’ve got your big banks and then you got your Texas Home Bank, your local bank that anybody can go and strike a relationship with. Those are your two types of primary sources when we talk about conventional lending. So when we have those forms, what I find is depending on the project size, that may direct where you’re going to go. Your smaller local banks have lending thresholds in which you can go with. So if you’re taking the smaller project, $10 million or less. Your smaller banks or a lot of times local banks are really good options for folks to start with. They usually have bank accounts there. They have some requirements to maybe have a bank account with them. But again, it’s a good source because they know your neighborhood, they know your market, they know what you’re doing, they may have a real strong relationship with you, that's a good source to start with from that aspect.

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https://lifebridgecapital.com/2019/11/ws376-the-lowdown-on-lenders-with-rahul-patel/