Bank Financing

Everyone hears about the ‘creative’ ways to finance a real estate project such as hard money or owner financing. While those methods are quick, they do have their disadvantages. Many times going the traditional route of borrowing from a bank can prove to be more profitable.

Banks generally are much more interested in residential home owners. They have a bunch of costs when they originate a loan for someone. The way they recoup their costs and make a profit is to have the borrower hold the loan for a long time and pay interest on it. When someone comes into their office and says they want to flip a house, they immediately think about a loss on their funds.

That’s not to say banks don’t want to lend. Just that they may be a harder sell than a private investor or other money routes. Banks are one of the best ways to go, along with maybe owner financing, for buying and holding a rental property. You generally can’t beat banks when it comes to low interest rates.

Real estate investors and large banks (Wells Fargo, US Bank etc.) are not the best mix. Big banks don’t know the local market, and have very rigid rules on lending. Smaller, local banks are more interested in the community. They are also (most of the time) easier to navigate and have quicker loan approval processes. They also work with local appraisers who know the market better. Many local banks will also help with loans to flip a home.

As with everything else in real estate investing, it pays to be persistent. Besides calling lots of banks to find one that will finance your particular deal, there are other ways to cut down the time it takes to find bank financing:

• Mortgage brokers – Brokers will search the market to find you the best deal for your particular project. They have connections with lots of local banks and many times can quickly recommend a lender that would be good for your project.
• Lenders that turn you down – If you talk to a bank and they say they don’t do flips or they are only interested in owner-occupied financing, ask them if they know another bank that does work with investors. They will often have a lead in their network.
• Other real estate investors – Both offline and online. Talk to other landlords or call the numbers on the ‘I Buy Houses’ signs to see who they might be using. Many flippers may stay away from banks, but some use them. Online call on Craiglist ‘I Buy Houses’ postings, or join real estate groups and forums to ask about specialty lenders. LinkedIn and Facebook also have real estate investor groups who may have ideas.
• Real Estate Investor Meetings – Most metropolitan areas have a Real Estate Investors Association (REIA). At most of these meetings there are banks and credit unions that are looking for investors needing loans. If they are at the meeting, they lend to investors. There may be other kinds of real estate meetings in your area, such as those on com. Ask around or search the web. Either way you may find a great lender.

Once you have a good relationship with a bank, it will be easier and easier to be approved for a new loan. Although banks can take a while to fund a deal, they also have the cheapest money. If your deal can afford to wait, then banks are probably your best bet.