What do you look for in Lender?

[Shane Verville]

What sets a lender you'll work with again and again from the competition?

[Ryan Blake]

@Shane Verville

Relationship and ability to close. Assuming you are investing seriously, you will be working with these people a lot. And every deal is different. There will be small irregularities, specifics that are unique, and a short time frame. If you are close with your banker and they know and trust you, it becomes possible to bend some of the standards they have for loans. I suggest smaller community banks for this kind of relationship. You can't build this kind of trust with Wells Fargo or Bank of America. They don't bend their rules because they keep standards that are rigid across their thousands of branches. Small community banks give you the opportunity to be working directly with the person who sets the standards for the bank. Take advantage of the opportunity to go straight to the top. 

I don't worry about a half a point or an extra % in interest.

Think about it this way, you have a deal where you can go to a medium or large bank for 1 point and 5.5% APR with 20% down (or 20% equity left on a cash out refi). Or you go to a community or small bank for 2 points and 6.5% APR with 20% down. For a $100k loan you will save $2,000 in the first year and $1,000 each additional year (I know that the interest doesn't work quite this simply but this is a high level example).

If you do 1 deal a year, after 5 years you will have saved $20,000 roughly in interest and points. Lets say each home is making you $200/month, $2,400/year. This would give you profit of $36,000 over the 5 year period plus the $20,000 in savings if you went with a big bank for $56,000.

But what if after your first year the small bank started giving you other lending options. And you could buy a home with 100% financing for the purchase and the rehab for still 6.5% (there is a bank here in Fort Worth that does that). Now you could buy at least two homes a year. After 5 years your profit will be $72,000 with little to no cash invested. The extra money on each deal ends up becoming inconsequential when you are able to do vastly more deals. Small banks can make these kinds of offering because they keep their loans in house and don't need to set them up for Fannie or Freddie standards.

Talk with investors and ask where they bank and what loan products are their favorite.

Hope all this helps.