What (and how much) to bring to a lender for first time investor

[Ryan Gochenour]

Hello everyone, my name is Ryan and I am a newbie looking to start my investing career in the Omaha, NE area. I’ve been doing my due diligence and researching the area in which I live. My question is when presenting a deal to a lender, how much information is too much (or absolutely necessary) to bring to a lender to prove the deal is worth lending too.

I’m looking at using a conventional loan and putting 20% down, and using either a small local bank or a credit union. So I was looking for some advice on what I should bring to the table other than a deal analysis (like from the BP calculator) and just my own research. I don’t want to bring a novel to them. But I know more research and info is better than not enough.

Anything helps! Thanks everyone!

[Jonathan Bombaci]

Hi @Ryan Gochenour think of the bank as a potential business partner. If you were going to invest hundreds of thousands of dollars in someone else’s deal what would you want to know? 

I spent 10 years in corporate finance for insurance companies so numbers are "my thing". Numbers are important to demonstrate you know what you're doing. Bring 3 color print outs of the biggerpockets calcurator and replace the logo in the corner with your own. Make sure you're able to explain every number on the sheet. They'll look at it as a sniff test to see if you know what you're doing but will run the numbers themselves later. You care about the cash on cash return, they'll care about the debt service coverage ratio (DSCR). They'll discount the gross income by 25% for vacancy, maintenance, capex, and management. I discount mine by 27%, so I'm more conservative than the bank. They love seeing that and if you call that out you'll get their attention.

Bring your resume to the meeting, this is an interview treat it as such. Numbers make or break a deal for sure but good lenders value the relationship as well. Tell them your backstory and your vision for real estate but be realistic. Pitch them a very achievable goal and tell them you’re looking for a bank to partner with. If the first one goes well you’ll bring them the 2nd one. Also tell them you’ll leave the operating and deposit accounts with them. It’s likely going to be a requirement anyways but by offering it up you’re showing them you know how the game is played. 

This is a 2-way interview so bring questions for them as well, and not just about how cheaply they can lend you money or max LTV%'s. Ask them questions about the bank and how it interacts with the community. Ask them what they like to lend on and what they don't like lending on. At what point do they need to seek board approval to approve financing? Some banks are better a certain property types, locations, and asset sizes. If you understand this then you can bring them the deals that will interest them the most. Ask them what they look for when deciding to lend money to real estate investors, see if they describe you.

At least this is what I do when I'm talking to lenders. I don't pretend to always find the best deals on the planet, in fact most of them are from MLS. I've never been denied financing but I know which credit unions and banks like to lend on certain assets. This is important for both myself and our clients, this probably our biggest differentiator in the marketplace.

Best of luck and let me know if you have any questions. 

Jon