HOW TO CHOOSE THE BEST FUNDING AND INVESTMENT PROPERTY LENDER TO MEET YOUR NEEDS
Taking Different Paths to Reach the Same Destination
Despite what most people think, there are a lot of investment property lenders out there. Billions of dollars have poured into private and hard money—and that capital is readily available for the average investor to fund projects of all kinds. So how do real estate investors choose the best ones to work with? Why not just settle in and work with one lender?
All lenders offer financial leverage that may be used to take you to your goals. And building relationships with mortgage lenders and capital sources is important, but there are many choices, and sometimes it is not only wise but necessary to shake things up. When is it time to bond with a lender? Break up with one? Mix it up?
Picking the Right Lender for Your Project
Investors often find themselves switching their game plan due to personal goals or market changes. Or they adopt new strategies as they progress over the course of their investment lifetime. Get to know the right funding for your investment type and shop the best lenders to meet your particular needs.
For a number of reasons it is often unrealistic to use the same lender for every deal that you’ll ever do. You may use the same loan broker or lending portal, but the individual financiers will almost certainly differ over time and between transactions.
Five Scenarios That Demand Multiple Lenders
1.Really big deals
2.When switching between strategies with the same property
3.When engaging in different real estate investment strategies
4.When investing in different geographic locations
5.When reaching a lender’s limits
Different Types of Lending Sources
•Conventional banks
•Credit unions
•Crowdfunding
•Hard money lenders
•Private mortgage lenders
•Land loan specialists
It’s not uncommon for bigger deals to require a variety of funding, including the investor’s own cash combined with commercial lender loans or even crowdfunding. In the case of a fix and hold, a hard money loan may be used to acquire the property and obtain rehab funds. After work is complete and the property is rented, the property may be refinanced on more attractive terms on a long-term loan.
Regardless of strategy, geography, experience, and other factors, many lenders have restrictions on loans they will underwrite for a single borrower, including the number of loans or a dollar amount, in order to limit their exposure to loss.
The Importance of Investor-Lender Relationships
Even though it pays to work with multiple lenders, relationships are important. Relationships with lenders, loan officers, and other vendors can make all the difference in getting more and better real estate deals done, improving your investment performance, and gaining a competitive advantage in the marketplace.
Once you have some deal volume, investors are often flooded with offers of credit. You’ll even have competing lenders and title reps stopping by to take you to lunch or happy hour—all in an effort to win your business. Remember, they need investors as much as investors need them. But until then, it’s on you as the investor to do a lot of the relationship building.
Making the effort to build relationships has a great payoff. You know what they say: “Your network is your net worth,” and your network can carry a ton of weight when it comes to getting better terms and loan deals, getting rushed files closed on time, and shuffling closing fees to make the numbers work at closing.
The Reality of the Lender Relationship
You may develop friendships with your loan officers, title reps, home inspectors, and other industry professionals. But when it comes to lending entities, you shouldn’t count on a “one and only,” long-term relationship. Why? Especially when you’ve developed such great working relationships? It is important to know that every lender goes through phases and cycles. What may be a great lender to work with this year may not be next year. Lenders may run into financial challenges or changes in underwriting guidelines; they may take heavy losses on one type of property or loan profile or, over time, they may find regulations in your state or zip code unattractive to deal with.
Over time your borrowing needs will change, too. You may move into multifamily deals, commercial property investing, or another asset class—and that means you may need a new lender who specializes in that particular investment type.
Another reason you can’t count on long-term relationships is that an investment property lender will often sell loans after they are processed and closed. Most often you’ll deal with someone completely different when it comes to loan servicing next year.
Giving a lot of business volume to the same vendors and lenders over time can give you some pull in some cases, but don’t expect that loyalty to be reciprocated as much as you think—especially when working with the larger financing companies. Ten years and $10 million is barely a blip for a multibillion-dollar lender that has been around for decades.
Investment Property Lenders Need You Too
Too often, investors have a one-sided view of the lender-borrower relationship. Never forget: Lenders need you too. Loan officers need you too. New loans are their commission, profit, and paychecks. If your project is a winner and you are a good risk and can help them deploy capital and boost originations, they will aggressively seek your business. They spend millions of dollars on trying to get the attention of investors in an effort to attract and keep borrowers. Consistent repeat business saves them massive amounts of money and increases their operating profit. But remember, every lender isn’t always a good fit. When terms and relationships aren’t working, don’t try to force it. There’s another investment property lender out there that offers the type of capital you need.
TAKEAWAYS
Think about the types of properties and projects you plan to invest in.
Next, make a list of each property type. Identify the different types of lenders you can utilize and begin researching available funding sources for each.