Finding a Knowledgeable Portfolio Lender!

I always hear investors reference the importance of aligning with realtors, attorneys, and accountants who themselves invest. Yet, I rarely hear a reference about working with a lender who himself or herself invests. I’m an investor and also work as a portfolio lender for a local community bank in my area. I’m a finance guy who gets real estate. I’m not a handy-man, so my ability to add-value derives from comprehension of the market, property characteristics, and creatively executing the financial and lending aspects of each transaction. I have to excel in those facets, because I’m not as well versed in the others. That’s the beauty of real estate though, right? You can utilize your strengths, progress, learn, and outsource other components as you scale. My goal is to be a resource for investors and assist in the comprehension of the financing component. If not understand, then at minimum help lead investors in the right direction.

As we all know, financing a project is a major component of any deal. As my passion is the real estate side, naturally a majority of my loan clients are investors. I believe it’s critical to develop a rapport with a strong portfolio lender. Sure, your first few SFR deals can be taken to essentially any mortgage broker for secondary market financing, but at some point as you scale you’ll be extremely limited in terms of financing that way. I would encourage any investor to start building those relationships early, and finding portfolio lenders who understand investing, and ideally are investors themselves. More often than not, you’ll find that at a community or regional bank. Savvy portfolio lenders can provide a vast array of financing options. I want to cover a couple of those routes today, and eventually as my blog progresses discuss each method in more depth. Obviously if any questions come up, feel free to reach out!

Cross-collateralization: Cross-collateralizing involves leveraging equity in a unit to acquire another. This can be utilized to minimize and sometimes eliminate a down payment. I don’t want to go in too much detail, but the more growth you experience as an investor in terms of aggregate equity position, the more valuable this route can be to obtain units with minimal cash out of pocket.

Equity based LOC: For investors who implement the BRRR strategy, a great way to accomplish this is through the use of a line of credit. If you have a strong equity position within your portfolio, you can originate a line of credit leveraged against that equity. That will allow you to essentially acquire a new property with cash, renovate with cash, and then once leased you can refinance, with proceeds paying the line back down.

Project tailoring: A good portfolio lender should structure the financing to your specific project. For customers who expect a lot of rehab, ideally a term with a 6-12 month interest only period initially to allow for necessary renovations is helpful. If there is a vast amount of rehab expected, you can factor that into “project costs” and lend based on that figure, assuming appraisal figures allow for it. These are just a few examples, but you catch the drift. Lender astuteness is pivotal.

These are just a few basic strategies, as some of you may very well know and implement. As I progress I'd like to cover the specifics of how to leverage equity, how banks assess credit, funding rehab projects, consolidating debts, creative financing for the first time investor, making yourself lendable, and anything else deemed valuable. I recognize portfolio lenders in each community may differentiate in terms of underwriting and flexibility, so that's also important to keep in mind! Also, I’m very much in the initial phase of my professional and real estate career, so I by no means am a guru. Sadly though, I’ve had discussions with many seasoned lenders, and many of them are inept... which again is why I feel like some insight from the “other side” is useful. Take care and thanks for reading!

Cain