Keys to funding your apartment deals

[Carlos Liriano]

Hello fellow Big Pocketers,

With all the different funding sources to purchase commercial apartment buildings, what might be the best approach to receiving banks or private money?

Thanks a million,
Carlos

[Roger Doe]

If you have time, you can approach the banks directly. Each state has a list of all banks and credit unions. Call each of them directly and ask to speak to the commercial mortgage department. Just to warn you, some of them don't like to deal with inexperienced investors because it takes so much longer to complete a loan. Also, you might get paired with a loan officer that is clueless who might screw up your application.

On the other hand, you can work with mortgage brokers who are very expensive but will do all the work for you. Also, they are more likely to get the loan for you since the banks trust them because the bank trust that the mortgage broker did the screening for them.

If you have time, I would approach the bank directly. It'll be a long stressful process but it's a great learning experience. But, if it's a deal that you need to get completed right away, use a broker.

[Carlos Liriano]

Roger Doe, thanks for the info.

What do you think might I say to gain the confidence of the bank as a knowledgeable applicant? with experience partners

[Roger Doe]

I wish someone who's an experienced loan officer would chime in. But, here's my experience.

First, make sure you get a good loan officer. Someone who's been doing this at least for 10 years, preferably 20. And, someone who's done at least 3 commercial deals a year. This is really crucial. Even if they've been a loan officer for 20 years, if they don't do many commercial deals, they will do more harm than good. The loan officer is basically you're liason between the underwriter and you. The loan officer fights for you because he only gets paid if the deal is done. But, if he doesn't know what the underwriter is looking for, he's going to present the deal poorly to underwriter. And, you've only got one shot with that bank. (You can come back a year later but that's just wasting your time.)

Ask them straight out how many commercial deals they do a year. Most of them at most only do 1 or 2 every few years or so. Skip them. I've used so many inexperienced guys that simply have wasted my time. It drags week after week, month after month. The loan officer will just keep telling you it's almost done when it's not because he doesn't want to lose the deal. Experienced guys will tell you right away that the loan won't work that that bank and you don't have to waste your time. I now use experienced guys and even they screw up too.

In terms of experience, the bank wants someone who's been doing this for a number of years. They are rightly afraid that someone who buys an apartment building for the first time, won't know what they are doing and the cash flow will suffer. I've seen it so I guess you need to show them you've done this before. Anything to show that you know how to run a real estate business.

Hopefully, someone in banking can chime in....

[Jonathan Casillas]

Roger Doe has made some good points. Going through the banks will teach you the most but will take the most time. You could go with a LO who dose some Commercial Real Estate deals a year. Or you could find someone like myself I am a Commercial Real Estate Loan Originator. We deal strictly with Commercial Deals. For my money I would find a CRE Loan Originator who you feel comfortable with and can build a relationship with (but the again I am partial). I am working on doing this myself in the residential side as I work out my plan for some small residential investing and to know who to refer to if a client or prospect needs a residential LO. An Experienced CRE LO will know what banks/underwriters to approach according to your unique situation. As a general rule banks/underwriters look at the same things BUT in my experience they do have there investment niches they like more then others and they try to stick with the ones they like and understand. They also have unique characteristics they look for in those niches. Granted some banks don't mind taking the time to learn new niches but again in my experience as Roger Doe Pointed out they typically like to talk to Brokers/LO who they already have a relationship with and knows what that particular bank is looking for. It makes it easier for the conversation to get to the point on how the bank would benefit from learning about the new niche.

[Carlos Liriano]

Roger Doe Jonathan Casillas, Thanks for candidly sharing

The conventional way sounds straight forward, adding in that every deal is tailored for it's own unique situation.

As a newbie or "inexperienced", would I be able to show credibility With a legal structure and team of professional backing my ventures (references of sort) ? along with the art of persuasion and meeting requirements?

Am curious to know how you would approach a accredited investor( private investors) with deals? what are the differences between the conventional and unconventional means of obtaining funding?

Is there a package of goodies or tools you should have when sitting down with these sources of funding?

[Jonathan Casillas]

Carlos Liriano some of the things that come to mind are:

1. Personal Financial Statement
2. 2 Years Tax Returns
3. Rent Roll if any
4. Purchase Agreement
5. Proof of Funds (if any I Highly recommend this and I would say 99% its a requirement investors/banks want to see that you are willing to put "Skin in the game")
6. A Business Plane
7. A 3 year projection of the business.

In my experience the deal itself and the re-pore you build with them holds more weight when talking to a privet money lender then it dose when talking to a bank (granted this again is on a case by case basses). This could be because for the most part private money people are investors as well while banks are a numbers business. Hope this helps.