Should I be skeptical

Question

As a new investor I am so excited when I see the opportunity to acquire a new home. However, this excitement is one of the reasons why we newbies make mistakes. My husband and I are looking to get our feet wet with every type of funding out there. We want to see what works for us and exactly how its done. Personal loans, cash and bank financing is done. We are solid on knowing most of the ins and outs. Now we are actively searching for private lenders as we found a home that is in the perfect location, generates excellent cash flow and tenant is locked in for over a year.

Recently I signed up on Connected Investors. I put in my funding request and now I have all type of scam artists contacting me. I did connect with someone in my area so I don't want to deactivate my account just yet. I also found two lenders that, in my opinion, seem very legit. One of them I actually talked with on the phone as well as their partner. They get their money from a hedge fund. The do 5 year fixed and then 30 year amortized. We can keep them or allowed to refinance. They do between 5 to 8% depending on credit score. up to 90% LTV which actually is not up to them but the investor they are getting the money from. They do their own due diligence. Appraisal fee and processing fee is due upfront. An inspection may or may not be needed depending on who the lender is. They also charge 2-4 points.

The home we put an offer on is a short sale so technically the closing is not going to be anytime soon. So I have a little time but getting a lender we can work with on a regular basis is something we want to find ASAP. I don't want my excitement to blind me and no matter how many posts I read I cant tell if its a good thing or bad thing. Talking to them on the phone eased my mind a little but I feel like I need to know every detail about these people. I hear stories of people doing deals with people they barely know and everything goes smooth. But the horror stories are so bad I cant get them out my head.

Im also a Private Investigator so I can easily run a background check but I don't have much information to go on unless I ask for it. Am I going to far with wanting to run a background check on the people I am doing business with? I am not trying to scare off potential lenders but at the same time I figure that if they have nothing to hide they are okay with it. I wouldn't be as skeptical if they were in my area and could grab a lunch and get to know them personally. But the fact they are miles away leaves me with some doubt. They are in Illinois. They have a website with the phone number and physical address. They seem to have other businesses as well linked to REI. I can't find much but the main guy has been around for some years as I have seen posts on other REI sites from like 2008 or earlier.

Any suggestions would help. My nerves are kicking in.

Darren Eady · Answer

@Nikki Grizzle I think running a background check is a great idea!  I like the skip-traces because it has family phone numbers as well to try to reach a borrower.  In the case of a lender, I'm not sure the posturing is the same, but I don't think it hurts to run the same type of report.

The terms seem pretty good with the group you found.  Charging an appraisal fee can be typical, but how much is the processing fee and why are you paying it upfront before they start working?

If you can share the lender's name, please do, if not, could you share it on a PM with me?

Nikki Grizzle · Answer

@Ryan Catrambone Oh no we are perfectly fine with this as we are set to close on this home in a few weeks. However, we were told we would not be able to get another loan through them until next year and cannot use our current property as income since we got it this year. This issue I am having has nothing to do with this bank. We are just actively searching for lenders in general. No major banks. Its just a matter of who is willing to work with us and who has the better deal. One company we tried to go with was very sloppy. His job was to search for lenders but we found out he was brand new and didn't even ask for half the documents and information he was supposed to ask for. Example, documents on the property itself to present to the lenders. Its appraised value. Simple things. Had the main person not been on vacation, things may have been okay.

Ryan Catrambone · Answer

Ahhhh makes sense now.  I was wondering why you were having so much trouble.  If I can't get one client a loan with my lender I just look for another one until I accomplish the goal.  It makes more sense now seeing that your bound to that one bank due to the nature of the transaction.  Good luck!

Nikki Grizzle · Answer

@Ryan Catrambone Yes, we definitely do want to get away from banks. Actually, we have no choice at the moment. The only reason we were able to work with the bank is because we were doing business with the VP.

Ryan Catrambone · Answer

Also, When you say you are just starting out do you mean that you are starting as a LLC?  I can see having difficulty as a brand new LLC but if you have good credit and your debt to income is low to moderate and you are currently employed I don't see why you are having trouble.  Feel free to PM me if you want.

Ryan Catrambone · Answer

My advice to you would be to get away from the bank and talk to a lender.  Banks are far stricter on their guidelines and don't always get the best deals, also they are limited to only what their bank will offer.  Lenders can search out many different banks which gives them a lot more freedom and wiggle room to accommodate your needs.  Hope this helps.

Nikki Grizzle · Answer

@Richard Balsam We already are working with a bank for a home and set to close the end of April. What we are looking for is Private Money Lenders. Conventional financing only goes so far since we are just starting out and do not have any track record. Also, we are only doing buy and holds. Every property we look at are tenant occupied and have immediate cash flow. Because we just started this year they will not take into consideration our other property. We are also no able to put down 30% at the moment which is way higher than we ever would want. We have found PML that are willing to do 10%- 20% but it all boils down to who is giving us the best deal. Unfortunately, none of them are close by. Hopefully all the networking we are doing, we will come in contact with a few. We are still searching for a bank that we can do a line of credit with. It seems they are more rehab and flipper friendly.

Richard Balsam · Answer

One thing that you can try in your area is do a google search for SMALL community banks. The ones with only a few branches trying to compete with the big boys. Sorry...this post became long with my answer!

I was given a name of a very small ( two branches) community bank near me. Spoke with the lending officer - and told him what I am doing, what I am looking for, and prefaced that with "I have been investing for years - but I need and will search until I find - a bank that understands what I am doing and will allow for a product that they might not have done before". When he asked me what I need to continue being successful- I told him "some type of line of credit product where you can send an appraiser to the house to verify the house value, and I will need financing for six months or so until I can sell the home, and will need the funds pre-approved so I don't wait with each house for financing approval. " Of course- his answer was along the lines of - "let's talk, and I am in a position to recommend to our board (of directors) any product that makes sense". Meaning...I am the one that suggested the product, the use of the funds, the time limit that I would need it for (for each project), etc. I also mentioned that the best homes I want to add to my portfolio - and will need a "standard" mortgage product on it - he really liked that statement. They are in the business of lending, and if I diversify with multiple homes - the risk drops substantially with any given house payment, with other wholesale deals also in the pipeline.

Now- I also have a portfolio of cash flowing homes- so it may be a bit different in that regard. But...I also had to give him my personal information, SS#, etc - so they know who they are dealing with. All they are waiting for is my 2015 tax returns to verify everything. I expect an approval within weeks of me providing the return. Everything up to this point he mentioned was good. They are willing to lend up to either 70% of the before rehab value, or 70% of the after rehab value - so I am the one that will buy the home, all repairs, etc - and pull my cash out upon finishing and getting the appraisor to justify the new value ( this was part of my risk reducing strategy for them). But- the 70% was their offer to me -other banks will have their own different criteria. This work's for me, since I am looking for a $500-1MM line of credit. I must keep recycling my money and have them refinance me with a 1st lien until the house is sold. Since the line is quite large - I can do many homes before I max the line out. Hopefully, before house #3-4-5 I will have house #1 under contract or sold. And my strategy is to rinse and repeat.

So...you never know financing opportunities near you until you inquire, meet with them, and offer them some type of reasonable business opportunity where they are not taking the entire risk. They may start you with enough for one house at 70% ARV - but when you prove yourself with them, it will be easier to expand over time. Each bank wants a client that always pays on time, and is selective in their investment  criteria. That's what relationships are built on with banks. They won't just lend because you found a home- they want a well thought out plan for growth, a safe investment criteria and some risk absorbed by you - so they are not in 100% on any one project. A well thought out written business plan is a must!

I guarantee there are banks near you in NC that want to hear what you can offer. Remember -  If it was easy - everyone would be doing it.

Nikki Grizzle · Answer

@Wayne Brooks No they have not made any claims. I know they focus on the Chicago area but not sure what they have done outside. I was actually shocked that they were very laid back and not pushy like most lenders. Prior to speaking with them on the phone he asked simple questions like our credit score, information on the home we are looking to purchase, did we have between 10-20% for down payment. I was skeptical from the start because I was the one who mentioned that we actually speak on the phone. I assume that anyone who is giving you money would immediately want to talk with you on the phone or at least do skype or something. He is willing to talk every day and discuss the funding. I will also definitely ask them that. I assume they should also be registered if they use a hedge fund.

Nikki Grizzle · Answer

@Charlie Fitzgerald I definitely did not plan on paying anything until I know these people are 100% legit and have some type of track record.

Should I be skeptical

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