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Updated over 13 years ago on . Most recent reply

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Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
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Why Do Banks Want "A Relationship" If They Want To Reduce Concentration Risk?

Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
Posted

I recently read a piece by a popular author that observes real estate investors are gypsies when it comes to getting loans. They generally roam from lender to lender to get the best deal at the time for their situation and move on for the next deal.

This seems a bit counterproductive given that banks supposedly want to develop "a relationship" with their borrowers. I hear this time and again when I speak with small bankers. How can this be reconciled with the fact that the bank wants to reduce their concentration risk with a given borrower? How can this "relationship" persist given that it is at odds with the bank's own lending approach?

Thoughts? Ideas? Divine revelations? Is this just really code for the bank not wanting to compete?

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J Scott
  • Investor
  • Sarasota, FL
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J Scott
  • Investor
  • Sarasota, FL
ModeratorReplied

In my experience, banks want *serial* long-term relationships, not deep, concentrated ones.

In other words, let's do a couple loans today and when you pay those off, we'll do a couple more. Rinse and repeat...

That said, consistency goes a long way as well. After getting this serial relationship attitude from my current bank for over a year, they started to realize that all my 12-month loans were getting paid off in 3-6 months tops, and they recognized that they could probably lend more to me without much increased risk.

That said, despite the fact that I have an 800+ credit score, cash reserves and a great track record, asking the bank to up my line of credit is still like pulling teeth... :)

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