Portfolio lender requires Class A contractor???

Question

Going to doing BRRRR investing.

I spoke with a local bank because I’ve read about portfolio lenders are not subject to the 10 mortgage max, cheaper than hard money, and want to establish a relationship for long term.

They said that they require a Class A contractor to rehab the properties.

Is this always true or can it be negotiated if we do a few deals first?

Andrew Postell · Answer

@David Quan portfolio lending is called that because it comes from the banks OWN portfolio of money.  Their money = their rules.  Every lender will lend it's portfolio money slightly different....and sometimes drastically different.  So while that bank might have that rule another lender may not.  Since you are looking locally I would suggest two things:

• Post in the Bigger      Pockets STATE forum that you are looking in. There are usually some good,      local investors that monitor those forums. Maybe they already have a      suggestion or recommendation for you? Certainly try there.
• Visit your      local REI groups. There are many groups that meet across the      country. Some post here on the Bigger Pockets Marketplace. Many post on      meetup.com. Networking is always a great practice and you never know who      you might meet there and what good information they have to share. Would certainly      recommend visiting if one is close to you.

Keep in mind that a small lender STILL may not be able to close in time for some deals.  Hard Money is there when we have to close quickly.  Feel free to ask anything else if you need. Thanks!

Andrew Postell · Answer

@David Quan thanks for posting.  For renovation loans they are "riskier" for a bank to lend them.  Meaning, their foreclosure rate is higher.  And if that bank doesn't have someone that understands how to do them....well, they may not do them at all.  So if a bank is trying to limit it's risk to them, maybe they have a rule like this in place.  If it's their money, it's their rules.  And if this bank's rules are too limited...then we just need to go to another lender.  And that's why local real estate people are good resources for this sort of a thing.

David Quan · Answer

@Andrew Postell

Thanks for the info Andrew. Your shared intellect is very useful and I’ve seen you on other threads. Much appreciated. I will shop around banks and also connect with more REI groups.  Most of them are meeting again after the 1st of the year.

Stephanie P. · Answer

@David Quan

You're dealing with a bank. they make their own rules.

There is portfolio money out there at 90% of acquisition and 100% of rehab without a Class A contractor; in Virginia. PM for additional details.

Stephanie

Zab Khan · Answer

@David Quan

I’m a licensed B contractor in California. Here class A  license allows you to work on underground utilities, bridges etc. not sure about your state.

David Quan · Answer

@Andrew Postell  Can I ask you about a couple things from my conversation with the local lender?  It's a community bank that is pretty well known in the area.

Update:  Class A is required for the first few deals to prove our abilities.  That can be negotiable later.

They said it depends on the numbers of the deal, but they fund up to 70% of the acquisition and 100% of the rehab.  The acquisition number might be more if the price is right.  But this is for flips.  They said that they typically don't like to fund the acquisition on property we keep as rentals.  Do you know the bank would fund flips all the way but not be as willing for fix and holds?  (By the way, I am talking to the commercial lending side).

We want to BRRRR to build the equity and cash flow then move into multifamily.  We can flip our way into it and try to 1031 exchange but that may be walking a tight rope if we don't have deals lined up.  We might do the first few deals as flips to build more capital as well but just wanted to know the line of thinking in this case.

Clint Shelley · Answer

I would try a new bank. What if you find a property that just needs paint and carpet that you could do yourself? I agree that you would want the best you can get, but as an investor you're going to need a little more flexibility and it's hard enough to get a brrr deal without this added hurdle.

clint

David Quan · Answer

Thanks Shawn.  Down here in Virginia, there are contractor licenses like Class A, B, C with A being the highest level.  To my knowledge, the licenses are determined by years of experience and how much total value a contract can cost. Im sure there are more things to separate the classes.

Portfolio lender requires Class A contractor???

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