10 Ways to Work With Banks to Get the Financing You Need

As a real estate investor, it’s important to have access to financing. Whether you’re a rehabber who needs construction financing for a fixer upper, a wholesaler who needs short-term financing for a quick flip, or a landlord who needs long-term financing for a rental property, the ability to find and work with banks is an important part of the real estate investing business.
The following are ten ways to work with banks to get the financing you need:
1. Approach the right banks
The first and most important step is to find banks who are a good fit for you. There’s no sense in trying to convince a bank who doesn’t already have an established track record in lending to real estate investors. You’ll waste too much time educating them on what you need and how you need it done. Instead, find banks who already have an established history of working with real estate investors and understand their needs.
2. Have a good presentation
If you want to be taken seriously by a bank, you need to present yourself well. Whether you’re a new real estate investor and have a deal you need financing for or you’re an experienced real estate investor and already have a track record, gather all of the information you can about yourself and your deals so the lender can get to know you. Put together a binder that includes the following information:
Personal Information
• Loan application
• Credit report
• Business plan
• Business history
• Seminars attended or courses taken
• References
Past Deals
• Property addresses
• Purchase prices
• Rehab costs
• Sales prices
• Profits
• Before and after photos
Current Deals
• Property address
• Purchase agreement
• Comparables
• Deal analysis
• Rehab estimates
• Photos
Once you have this information organized, schedule a face-to-face meeting with the banker if possible. When you meet them in person you will have better luck Common Home Seller Mistakes than if you simply spoke with them on the phone. Also, make sure to dress professionally since you’re not only selling your deals, but also yourself.
3. Have your financials in order
Bankers speak the language of numbers. So it’s important to have your financial information in order. You don’t need to present this information at your first meeting (in fact, your first meeting should focus on what the lender can do for you). However, if you eventually plan to obtain financing from a lender, you’ll need to have the following prepared:
• Personal tax returns (typically last 2 years)
• Business tax returns (typically last 2 years)
• Net worth statement
Some lenders (such as hard money lenders) place more emphasis on the deal than the credit-worthiness of the borrower when making their decision to lend money. For these lenders, you may need to simply prove that the deal is a good one.
4. Invite your bankers to your properties
Once a bank has financed one of your properties, consider inviting the banker out to the property. This provides valuable face time between you and your banks. If your property is a ‘rehab in progress’, it’s probably best to invite them once you’ve completed most of the rehab. This way, they can see the progress you’ve made. Give them a tour of the property and explain the improvements you’ve made. This type of interaction allows your experience to shine and your relationship with the banker to grow.
5. Have a good system
When you’re working with lenders, it’s important to have a good draw system in place to get the rehab funds you need for your project. Draws (also known as construction draws) are detailed requests for repair funds which the bank disburses as work progresses. A construction draw may include any of the following:
• Invoices
• Receipts
• Statements
• Lien releases
• Photos
Since draw requests are often highly document intensive, it’s important to present and send this information in an organized way. Otherwise, it’s going to take a long time for the bank to review. The longer Small House Plans Modern it takes for the bank to review it, the longer it will take to get the money you need to complete your project. The bank will also view disorganized draw requests as a reflection of how you do business.
6. Be honest in your dealings
Whether you’re presenting a deal to a new lender for consideration or dealing with your existing lender about the current state of your business, it’s important to be honest and upfront about everything. There’s no sense in bending the truth about how much you think a property will sell for or how much rent you think you can get.
First, if you have to bend the truth about these things, then your deal isn’t as good as you think it is. Second, when you’re dishonest, you only damage the relationship since these things will naturally come to the surface over time anyway. For these reasons, you should be forthright when it comes to where you and your investments stand. Bankers will most likely forgive you if one of your investments don’t go as planned. Even the best investors make mistakes or lose money on deals, but what they won’t be able to overlook is being intentionally deceived. Be upfront, acknowledge mistakes when you make them, be humble when you experience successes, and you’ll enjoy a better relationship.
7. Read your documents carefully
When you borrow money from a bank, you’ll be required to sign several documents. It’s important to read these documents carefully, understand what the terms are, and be aware of how the terms may change over time. This becomes especially important when you have multiple properties with different loan terms.
Here are some of the documents you’ll need to sign:
• Promissory note – A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.
• Mortgage – A lien on the property that secures the promise to repay a loan. A security agreement between the lender and the borrower in which property serves as collateral for a loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose on the property if the loan obligations are not met.
• Personal guarantee – A promise which obligates the guarantor to personally repay debts his/her corporation defaults on.
8. Always be on the lookout for new lenders
Never get too comfortable with just one lender. You never know when your ability to obtain new financing or keep your existing financing may be put in jeopardy. The economy may change, the bank may change their lending policies, the bank may get acquired by another bank, or the bank may replace the banker you’ve had a good relationship with. There are many reasons why circumstances may change. As a result, it’s important that you always have backup financing options. Here are a few ways to ensure you always have a list of lenders to turn to:
• Ask other real estate investors which banks they use.
• Ask real estate agents who represent real estate investors which banks their clients use.
• Ask title companies/settlement attorneys which banks they see funding closings for real estate investors.
• Ask attendees at your local real estate club or association which banks they use.
• Search the internet for banks in your area.
9. Make banks compete for your business
Many novice real estate investors have the mistaken mindset that lenders have the ability to “call the shots” since they provide the financing. As the old saying goes, “He with the gold makes the rule,” right? While this is true, you should still remember that there are a lot banks in the marketplace today. And these banks want your business. They idea here is that you should never approach a bank with the mindset of “do I qualify for a loan under your terms.” Instead, you should be approaching the bank with the question “what kind of terms can you offer me?” And then ask yourself, “do I think this is acceptable?” When you think this way, you are in control.
10. Don’t over borrow
Once you’ve learned how to obtain access to the financing you need, the most important lesson is to not over borrow. This is a lesson that most real estate investors don’t learn until it’s too late. They usually learn the hard way. Real estate investors who borrow in rising markets often get overconfident and eventually take on too much debt. But if markets fall (and they do), these investors are often the ones left with properties that are worth less than what they owe. The result becomes a nightmare for the real estate investor and the bank. Remember, leverage increases your profit potential and your ability to do more deals, but it also increases your risk.