Why You Need a Banker

If you have been reading the string of articles I have been posting, then this headline may cause you to pause and make you think.Do you have a banker on your team to help you build your asset column?If not, then you need to find one.From personal experience, I can tell you most people don’t have a banker and some who think they do are sadly mistaken!

Allow me to elaborate.When someone has done enough research to educate themselves on real estate investing, one of the first steps in the process is to make sure you have enough funds (cash and/or credit) to purchase the property you have selected.

Since my job (using our team approach) is to be the person that locates the money to purchase and renovate the property, it also means I must know and find qualified individuals that have the short-term capital for the team to be able to purchase cash deals when we find a property we like so we can close quickly.

One of my earliest investors is a personal friend of mine who I had known since I was about 10 years old.He was a few years older than me and had two sons close in age to my sons so we hung out several years ago and had continued to stay in touch.He was quickly approaching 60 and he confided in me he was not in a good financial position to retire based on not having saved enough money in retirement accounts that would amount to much income when he eventually quits, or can no longer work.

About this same time, I had established a record of accomplishment of successful real estate investing with my team and I wanted to share the good news as I thought it would be something of interest to him since he was looking for a solution to the problem of having very little retirement income.

There is the often-repeated adage that sometimes people cannot see the forest (the big picture) for the tree’s (concentrating all your focus on a small issue).This was the case with him since he saw the problem (I do not have enough money saved for retirement and I am close to retirement age) but did not see the potential solution.

Since I am a banker, I asked him to complete a personal financial statement and the answer was right in front of our eyes.He had not accumulated much for retirement, but what he did have was a ton of equity in his house.“Why don’t you get a HELOC (home equity line of credit) so we can do some real estate investing together?” I asked him.He replied, “I never would have even considered that.I am trying to stay out of debt.”

Here is a perfect example of why being debt-free sounds like a great idea, but when you dig deeper it can be the opposite approach from what you need to do to solve a bigger financial issue.There is no point in being debt free while at the same time struggling financially to stay afloat because your income in retirement is approaching the poverty level and may not cover your living expenses even though you are technically debt free!

My suggestion to him was to put all this home equity to work by establishing a HELOC with his bank to invest in real estate with local professionals who possess a multi-decade long record of accomplishment.He agreed and went to his bank and promptly found out he did not, in fact, have a banker.

Since he was debt free except a small mortgage on his house, he thought it would be a simple stroll to his bank to get the HELOC in place.After all, he had perfect credit and a lot of equity so what could be the problem?His bank did approve him for a HELOC.However, they severely limited his credit line to only about one-third of his total equity in his house.Why?

There is a widespread misconception in the general public about HELOC’s.While it is true this type of loan uses a person’s house as collateral to secure the loan, what most people don’t realize is the loan amount is based on your income, not by the amount of equity you have in your house.Even though someone has perfect credit and a ton of equity in their house, if they have low income they will not be able to qualify for a big HELOC.

This is why you need a banker.I let him try out his bank first because I knew he had a bank, but not a banker.I wanted to show him in real dollar terms the difference between having a bank and having a banker.He got approved for a $60,000 HELOC but he had over $225,000 in lendable equity in his home but his income was not high enough, for his bank, to justify lending him that much money.

A lot of banks that offer HELOC’s believe people are going to use them like a credit card to buy “stuff” or maybe a car.This is bad debt and banks want to limit how much bad debt a person carries.We wanted to use this HELOC to purchase investment properties that would generate more income than the HELOC would cost.We wanted to use it to buy assets.

My job was to get him a better deal so I put together a loan package showing how he intended to use the HELOC and I took it to another bank where I knew the banker.Because this banker knew me and what I had accomplished with my team with investment properties, he approved him for a $225,000 HELOC for my friend, a difference of $165,000!This was over three times what his own bank approved him for and he had been their “perfect customer” for years!

It was also the difference between doing one small house (if one could be found) every so often, versus being able to do two average sized houses at the same time which more than doubled the output.Today, this partner has ownership in $1,242,100 of investment property real estate with total equity in these houses at $408,839 because he had a banker!Having a banker can literally be the difference in doubling your income in retirement so you do not have to live in a state of constant worry about living on a fixed income with variable expenses that continue to rise.Time to find your banker?