As you begin your search for the correct team to help you build your portfolio, you will need to decide on how to fund your acquisitions. There are pros/cons to each type of funding, but this article is focused on if you have decided to look into bank funding.
Disclaimer: Each person’s financial situation and business is different. You must make that decision yourself with the help of trusted advisors. Know that if you ask a banker, you will get a banker’s answer. So, please look into Private Money, Cash Purchases, and Creative Financing as well BEFORE deciding that bank funding is the way you want to go.
Once you are ready to look for a bank, follow these 6 steps:
Step 1: First look on https://research2.fdic.gov/bankfind/ FDIC website to find a bank that is local to your area of investment and also in a small to mid-sized in assets. Look under the “Financials” tab and you’ll be able to see in the millions how much the bank has. Look for between $200-$600 million in assets. Typically those banks keep their underwriting in house and avoid the complex Artificial Underwriting logarithms that give immediate denials of applications.
Step 2: Timing. When calling the bank, be sure to avoid calling during lunch hours or Monday morning or Friday afternoon. You’ll most likely get voicemail. Call during “non-peak” hours. I prefer to call on Tuesday/ Wednesday afternoons for the best chances of talking to a live person.
Step 3: When you call the bank, you’ll want to ask to speak with the “Loan Department that works with real estate investors” so that you don’t end up in the department that works with first-time homebuyers. You still may be talking with the secretary or admin assistant for that department, so always ask “Am I in the right place?” “Can you give me information about your loan ‘products’ for real estate investors?” “Should I set up a time to speak directly with a loan officer?”
Step 4: Once you have the correct bank and the correct person to talk to, here are a list of potential questions that you should ask during that phone conversation:
Say something like…”I own investment properties and I am looking to grow gradually. What terms do you offer for acquiring investment properties?” Know that they will have different qualifications for either acquiring or refinancing.
Ask, “Do you work with many investors?” Wait for their answer as they will give you insight into the bank’s strategy and niche.
When asking about refinancing say, “I have some properties that have quite a bit of equity and I’m thinking about refinancing a couple of them. What are your terms for a cash-out refinance?”
“Do you have a seasoning period? So if I rehab it and increase the value over 2-3 months will you refinance on it’s new appraised value or based on the original purchase price? What kind of properties do you like to refinance? (single family, multi-family, commercial etc).
If the answers lead towards a good fit for your business, then ask to set up an appointment with the appropriate person. Say, “I’d like to come and talk through more details in person to see if this will be a good fit for my portfolio. Who would the best person be to speak with for that appointment?”
Step 5: At the in-person meeting, here are some items to say and ask:
Say, “I’m looking for a bank that I can grow with. Do you consider yourselves real estate investor-friendly? Do you loan on properties inside an LLC? How long does the LLC need to have been in existence? Will you lend if I have more than one LLC? Do you have specific counties in our state that you will only lend inside?”
Also, ask, “Tell me about the loan approval process?” Take notes of who is the gatekeeper and who is the actual decision-maker. Is it a person, AI “System” or a committee? Who is on the committee? Google them later.
“How do you run numbers on a potential property and on an investor’s portfolio?” Not all banks are the same.
“What are your loan origination fees?”
“Are there any other fees that I should know about with the closing?”
“How much do typical appraisals cost? How is the appraiser chosen?”
“What is the typical length of time that the process takes?”
“How do we lock in the interest rate? At what point should we do that? Do I have to decide the time or does the bank decide when to lock in the interest rate? How often do you update the interest rates?
“What is the application fee and what does that pay for?” This is different than the loan origination fee.
“At what point in the process do you pull credit? Will I be notified BEFORE this is pulled? Can I have a copy of the report (they are required to give you one)? Which credit reporting agencies do you pull from? (Experian, Trans Union, and Equifax)”
“Do you sell your loans on the secondary mortgage market? If so, when in the process do you sell it? Also, do you retain serving rights? If not, then whom would I be working with for the length of the loan?”
“Do you require escrow? (AVOID ESCROW!!!) If yes, how can we work around that requirement because I do not escrow as I want to be fully in charge of making those strategic cashflow allocations? I plan on appealing property taxes and shopping for insurance to keep my costs low.”
“Do you give a discount for autopay? Can I pay my loan online? Are there any discounts for paying online? Are there any pre-payment penalties?”
“Do you have a seasoning period?” *Note ask this and other questions more than once if you are talking to different people. You may get a slightly different answer and also receive more information on the topic.
Step 6: Finally decide on a bank and submit your Credibility Kit OR Website, Financial Statements, Profit & Loss Report (Also called Income/ Expense Report), and Rent Rolls.
Always call to follow up that all documents have been received. Read ALL the fine print, more than once if needed!! Build relationships with those in the loan department who are serving you, but also know that they are employees and may be transferred or eliminated at any moment. Ask even more questions than these. This is NOT an exhaustive list. This is only the start of having those important conversations with your bank or loan officer. Each person’s situation is unique, and you may need to ask completely different questions depending on your portfolio and goals.
***You may find it helpful to bring this list with you and print it out to write the answers in the blank spaces provided.
