What is an “investor friendly” lender?

Question

I observe the term “investor friendly” lender used regularly in these forums either by posters seeking financing or in the manner in which lenders market themselves. In many cases the forum inquiries or forum promotions are for construction or as many would call “fix & flip” loans.  The qualifying attributes are consistently: quick close, no tax return, limited documentation…. Essentially all of the focus is on the approval process. Meanwhile hardly any emphasis is placed on the loan administration and even more importantly the relationship component of lending.

Far too many investors, particularly those just starting out, are being conditioned to seek out the “easy” lending choice rather than invest time and energy required to cultivate meaningful relationships with lenders who truly value the borrower/lender relationship and are interested in assisting you grow. From years of borrowing I can also say these are the lenders who will take the time to understand obstacles that may arise on any given project and formulate solutions that keep your projects moving. At the same time, many of these “investor friendly” lenders operate like robots without the ability to adapt to the situations that arise in construction lending which makes the construction administration process far more difficult than necessary.

I am currently involved with a simple single-family rehab adjacent to a larger ground up project. I went with the “easy” investor friendly lender for the single-family rehab while using a bank that had rigorous underwriting policies for the ground up project next door.  The bank relationship is one I cultivated over many years and now lean on heavily for my more complexed projects. I am currently dealing with headache after headache with the single-family lender who cannot even articulate the reasons why they are enacting their flawed policies meanwhile it’s smooth sailing with the lender for the larger parcel directly next door where the loan is 20x the size.

I hope this illustrates where your priorities should be when forming your lender relationships and easy underwriting does not necessarily mean the lender is “investor friendly”.

Robin Simon · Answer

I think one of the key things here is that is the lender primarily one focused on conventional/owner-occupied agency loans and just dabbling with investment property loans in a challenging market or a truly 100% focused investment-property lender. There still is a tendency for DSCR Loans in particularly to get lumped in (throughout securitization) with other "Non-QM" loans, mostly owner-occupied when they really shouldn't be in my view, further a lot of the "tech" and software, systems buildout (including loan doc generators) are based on consumer resi which creates a lot of headaches.

Anything rehab/construction related though (which is what the original post appears to be more about) is a different animals though - experiences are likely to vary markedly by market, lender, bank etc quite a bit

Erik Estrada · Answer

I think this is a bit too deep for what most people mean by investor friendly. An investor friendly lender is primarily focused on the niche of investment property lending. Your typical home loan mortgage company is not too familiar with complex multi family deals, bridge financing, and the nuances of asset based lending. Hence why these lenders exist. This does not mean that all investors friendly lenders are the best lenders. That comes down to the lender's reputation, skill, and willingness to get the deal done. Nothing to do with the category of lending. I guess the word has a positive connotation that could be misconstrued as being a good quality lender. As you mentioned in your post, your best relationship with a bank that is familiar with these loans. The no doc lender could easily be a Loan Officer that has no experience doing the types of loans he's promoting.

Patrick Roberts · Answer

This is an interesting post. So much in lending comes down to mindset and how problems and scenarios are approached and solved. It's a problem of how one thinks about things. I can't tell you how many times I've seen this - both in working complex investigations in law enforcement and in dragging loans across the finish line to the closing table. Invariably, there's commonly some version of "we've always done it this way" or "because person X said so last time" or "well you just can't do that" that is creating the roadblock. I've found that when you push back using a logical argument based on evidence, you tend to get blank stares. But this is exactly what a good lender will do - recognize this issue, understand a viable pathway forward, and then fight for it internally and externally. "Why?" is probably one of the most powerful questions in existence (and one which I'm very, very inclined to ask lol).

A lot of being an investor friendly lender comes down to understanding the investment process, including how credit guidelines support and conflict with typical investment strategies. More importantly, though, I think it comes from being willing to push back and put in the work to find solutions to investment problems, rather than just accepting an answer at face value. In short - in comes down to having a deep understanding of the hurdles investors face and being willing to put in more work than just saying "well, I submitted the file and the AUS/underwriter said no. Sorry."

Lastly, I think it also involves being pragmatic and helping investors set realistic expectations. I cant tell you how many consultations I've had that have literally saved people from thousands of dollars in mistakes because they were trying to do something impossible that some tik-tok scam spouted off in a 30-second clip. Also, if you understand the investment side, you're able to look down the road a ways, identify potential issues, and then work with the investor to address the issues now before it's too late.

All of this highlights the important of a good relationship with your lender - you want someone who will go to bat for you internally, rather that saying "I'm really busy right now and that's a lot of work and the underwriter already said no." Having a shiny DSCR or hard-money product only goes so far.

This is also a refreshing post compared to all of the spammy posts that have popped up lately from accounts that are new and are some generic version of "what's a problem you face today?" to generate leads.

Jay Hinrichs · Answer

Stuart I think its two fold.. ONE many investors simply would never qualify for a loan from a Commercial / community bank and the full loan doc process..

Two after the GFC many banks left the SFR rehab loan business and simply don't have that product unless your a top tier depositor and I don't mean 100k in the bank I mean 7 figures so basically borrowing your own money. So this left a HUGE opportunity for the private/hard money lenders to fill the void. there is 10 to 50X as many PML/HML in the market today than there was in say 2006..

And for sure I 100% agree with you about how the loans function on the back end. Especially construction development.. I have taken a few construction loans from the national HML and its quite frustrating and I only do it when my bank Credit lines are maxed and there is a project that still is profitable and I don't want to miss it.. Borrowers many times especially if they are newer actually have no clue as to how bad it can be with these investor friendly lenders if you have a water landing.. Compared to a bank you have a great relationship with.

As one who got totally hammered in the GFC if I was not with my Banker of 30 years I would never have come through that in tact I would have been like many of my peers and had to reorganize ( code for file BK). My bank stuck with me as at that point I had 17 year track record with them. When the fed was hounding them to call my LOC they would not do it I was on 90 day extensions for 3 years while I crawled back.. But they kept the 1 mil available to me so I could operate and start my construction.. they also feed me lots to build on etc etc.

And even today with my current 90 home project while its full doc of course since loan size is 5 to 10 mil depending on how many homes we have going I was also able to negotiate what happens if.. IE if sales slow.. PML / HML in today s market is going to hammer you if you cant exit.. I pre negotiated rolling any inventory that I could not sell or would have to take a loss on to 5 year term and rent them..

Long winded way to say I agree with you full stop. But I am also cognizant that the PM/HM has taken over that huge slice of the SFR funding in the US  as I do that personally as well !!

Gustavo Delgado · Answer

I personally, never quite get the "investor friendly" anything.

Clayton Silva · Answer

Definitely a great point to highlight.  Honestly investor friendly anything is like the RE version of "organic" [insert food product].  It has somewhat lost its meaning due to saturation.  To be truly investor friendly, I think it starts with a lender who is investing themselves as well.  Is the lender buying the loans they are selling? Are they seeing the loan products from the client perspective like you mentioned?  Secondly, I think understanding guidelines, the constantly changing landscape, and really being able to offer many different options to tailor the lending needs to the client rather than force a square peg through a round hole.  Lastly, truly understanding and developing relationship is so important.  I have a lot of repeat clients that I know the ins and outs of their finances, I know their strategy, I know their markets, and it helps me tailor the loans to their goals.  Overall, lots of good points and a worthwhile read.

Rob Beeman · Answer

Looking at it from both ends (as I was an investor before I was a lender), to me an investor friendly lender is one that understands what is important to investors and operates their business to accommodate their needs while at the same time making it a win-win transaction.

Examples:

Have the rehab draw request be non-cumbersome and as seamless as possible

Offer maximum lending (use of leverage) and minimal down payment to help stretch the borrower's funds, even for lesser or non-experienced borrowers.

Have the loan NOT show up on personal credit reports. Issue the loan to the borrower's entity (LLC).

Either be available to receive a call or return the call as swiftly as possible when the borrower comes calling.

Allow the borrower to have multiple open loans simultaneously (if all parties are comfortable with it) to help the borrower grow their business.

Have loan products that help the borrower to expand their investing options in relation to ground-up construction and/or multifamily.

Have staff that are knowledgeable to investing that can assist and understand the borrower's concerns or requests.

Just a few that come to mind.

Lisa Fortune · Answer

An "investor-friendly" lender is one who understands real estate investors' needs, offering quick and flexible financing options to help you close deals faster and grow your portfolio.

Tina L King · Answer

Thank you for this post,because I am new to investing and I am seeing lots of terms that I'm trying to familiarize myself with. What I am getting from the friendly leader term is, I have a better chance at getting a my project fiance through them. Am I correct.  Which leads me to ask this question, can you tell me what documents I need going in to a lender? And I'm trying to understand, Is it the house I'm getting qualified for purchase, or is it loan for the reconstruction of the house I'm being approved for. I need someone to clarify this for me. Thank you.

What is an “investor friendly” lender?

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