Hey BP, can you help refine my questions for banks?

Question

Hey all, I am looking to touch base and get my name out there to more local banks and other financial institutions here In the coming days. The banker that I had been in heavy contact with recently informed me we would only be able to do a 5-year loan instead of the 10 to 15 year range we had originally talked about. So I'm just curious of good things to ask bankers that you all have come across in your years of experience that have helped you out? I am looking at buying and holding to rent and using the BRRRR Strategy. Certain terms? Certain loan packages? Also if you happen to have good recommendations for institutions that I could seek out? We do have an LLC formed to put the properties under and we have around $10-$15,000 that could be utilized for a down payment.

Thanks for taking the time to read and thanks in advance for any and all information, greatly appreciate it

Thanks for taking the time to read and thanks in advance for any and all information, greatly appreciate it￼￼

Andrew Postell · Answer

@Cory Lucas to answer your question specifically I wrote a list of 9 questions that you should be asking every lender in your interview phase to see if they are compatible with the BRRRR method.  Here's the list:

Questions for Lenders

• When do you start using rental income to help me qualify? (the      answer needs to be immediately)
• When do you start using “After Repair Value” on my property? (also needs to be immediately)
• How long do you need me to be on title to refinance? (this is      important if you do need a short term loan to purchase then refinance out      - and the answer should be 1 day...very important that it is 1 day on      title is all that is needed to refinance)
• What is my minimum down payment required? (if they only require 15%      down on a single family home that is usually a good sign that you are      working with a flexible lender)
• How many loans can I have with you?
• Can I change title to my LLC?
• Do you sell your mortgages?
• What is your loan minimum?
• Can you explain to me what your reserve requirements are?

Now, keep in mind that every bank does not offer every loan.  That only makes it SLIGHTLY confusing, lol.

Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders.  Portfolio loans can run the gambit.  Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs.  A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

*WHEW*  I know this was a lot but hopefully it helps. Feel free to ask anything additional if you need.  Thanks!

Whitney Hutten · Answer

@Cory Lucas to add to Andrew's Q's, if you looking at commercial lending for BRRRRs also ask if the payment is interest only, for how long (I always do a minimum of 12 months so I don't' have to rush projects, tenanting, or refinance), and if you go over the time limit... what is the cost to extend the loan rate (this can get pricey!).  If you refinance out to commercial too, ask about prepayment penalties as most commercial lenders will do a step down of 5-4-3-2-1% over 5  years or 3-2-1% over 3 years.  If you are refi commercially and not conventionally, I'd look for a lender who will work with you to help you carry out the fix/flip/hard loan.  This could help streamline the appraisal process (by sending the same appraiser out to do the final appraisal... which is awesome... no more wild card appraisals) AND/OR hold your costs down with the loan fees.  PM if you have more questions...

Don Konipol · Answer

@Cory Lucas

Most investors finance their first 4 properties using conventional (Fannie Mae) qualifying financing, and don’t move to commercial bank investment property financing until they have to.  5 year loans for residential properties are a risky idea, we may be in a real estate recession when the note balloons.  Use long term fully amortizing loans with no balloons if available.

Chris Coleman · Answer

@Cory Lucas

I know this doesn’t necessarily help you on this first one, but once you get several properties and experience under your belt, that will generally help as well with bankers.

Especially with local banks and portfolio lenders, they are much more willing to talk and work with you when you have a good success story to demonstrate that you’re experienced in investing and managing rentals...and when they see that you are serious about real estate investing long term, so you’re going to do these deals and make them work whether they come along and partner with you or not.

Cory Lucas · Answer

@Don Konipol good thoughts, my concern there is with conventional it’d be under my name only correct? I tried flipping houses about 10+ years, different ball of wax I know, but I didn’t incorporate and it ended very poorly, so I’m trying to protect against things of that nature. Thoughts?

Cory Lucas · Answer

@Whitney Hutten great info! Thanks a ton for reaching out and responding, greatly appreciated

Cory Lucas · Answer

@Andrew Postell you’re a rockstar good sir! Lots of information yes, but crazy good information. Thanks so much for the reply and the time spent, it’s greatly appreciated.

I see you’re with Guaranteed Rate, do they lend in Illinois? I checked the websites you have listed on your profile, but didn’t see a list of states you lend to. Sorry if I overlooked it. Look forward to hearing from you

Cory Lucas · Answer

@Chris Coleman yep, I could definitely see that. Trouble is of course getting started! Appreciate the information and the reply￼

Cory Lucas · Answer

@Alexander Felice great stuff! Much appreciated, not sure why but I didn’t receive a notification that you had responded. Looks like I need to check out show #301 ;) Thanks for taking the time to reach out

Alexander Felice · Answer

Iv'e worked in banking for a while now, every bank is a bit different. All the questions you asked are good, you should ask them to every bank, and more. You can vet a bank in one meeting, but you won't really know what a bank can do until you start building that relationship. As you noticed the bank changed it's position as you got through the deal process, not sure the specifics of why it happened in this instance but underwriting is complex, so the more a bank gets to know you the better they will understand what they can do for you.

Try to work on specifying exactly what you're trying to do and find a lender who has experience in that specific type of lending. Referrals are source #1, local networking is important, reach out to a lot of lenders and email/call them.

Hey BP, can you help refine my questions for banks?

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