Buy and hold real estate investment is, in my humble opinion, the best long-term investment someone can make. That doesn’t mean it comes without its share of challenges, though. One of the major hurdles many new investors will face is finding bank financing. Yes, banks love to make loans to homeowners and they also like making loans to investors on large apartment complexes and commercial buildings. Many banks don’t, however, like to make loans on single family houses to real estate investors.
Where to Look for Banks
The best place to find banks that are interested in financing you is to find banks that have financed other people like you who are doing what you are or want to do. For this reason, I recommend finding your local Real Estate Investment Association or similar meetup and attending on a regular basis. Rub shoulders with the seasoned investors there and ask them which banks they have done business with. You can also post on various real estate forums like those at BiggerPockets.com or ActiveRain.com.
After all, if those banks are willing to lend to them, why not you as well?
While most investors will be cagey about giving out the names of their contractors since they have them working around the clock, every real estate investor I have ever met has been willing to tell me the banks they work with. After all, if I recommend those banks new business, those same banks will want to do even more business with me!
Another trick I’ve learned is to use a data search site like ListSource and search for lenders who have made loans on properties in a zip code I want to buy in that are non-owner occupied and had a loan in the last year of about the size I would be getting. Such a list should cost no more than $100 or so. Then, you can just look through the list to see which banks are making loans to investors on properties in the area and price range you’re looking for.
Once again, if they are willing to lend to others, why not you as well?
How to Present to Potential Lenders
Once you have a bank (or several) in mind, you should call them and ask to speak to a lender. Explain what you are looking for and see if it is something they would be interested in. If yes, I always like to meet to discuss it and get to know each other and build rapport. (Banking is still a people business even if it’s dominated by computers these days). So, ask the lender to lunch and make sure to buy.
At that point, you want to make a loan submission and for this, it’s crucial to have all your ducks in a row. Make sure your accounting is solid as if it’s a mess a confused mind will always just say no. So, if your accounting is out of order, fix it or pay someone to fix it.
Then I include all the financials, pictures of the property, personal financials, my resume, business plan, etc. in one flash drive and send it to the bank as the loan submission. I like to put it all in front of them and really impress the lender with the quality of the documentation. Remember, they are lending to YOU and not just lending on the property. You want to impress them.
Not every bank will say yes. Indeed, many banks aren’t even interested in that asset class which is why it’s so important to find banks that are and not waste your time. But once you have found interested banks, assuming our credit is at least OK, you should be able to get one to approve your loan with a strong presentation.