REAL ESTATE POWER
Over the next couple of weeks, I am going to start posting about real estate transactions. The first set of posts are going to be related to managing bank relationships. I know that most investors avoid banks because they have bought into the hype about the importance of being ananymous. As a lawyer, I believe it is more important to do what is right, accept the fact that you are going to get sued and prepare accordingly. Bank money is usually provided at decent rates, predictable terms and average loan to value ratios. Your personal guarantee should not be a problem if you are person of integrity. I am not saying that you should avoid other forms of financing but you should start with establishing a good relationship with a local community bank. I have 5 community banks that I do business with and all of them provide great customer service and better then average terms.Here are 10 things to do to establish a banking relationship:1. Spend the money and time to have your accountant prepare industry accepted financial statements and have them updated every 6 months.2. Prepare an asset sheet with liabilities to provide the bank a clearly defined net worth, cash on hand and debt load analysis.3. Have your tax returns for the last 3 years scanned into the computer so that you can email them to the bank quickly. They are going to move them around internally and paper gets lost.4. Always maintain a cash reserve in a mutual fund or other liquid vehicle to prove reserve funds but never use that money.5. Never take out second mortgages on investment property.6. Provide a written explanation of your tax return if one of the most recent years has something abnormal on the return.7. Ask for more than you are going to receive.8. Ask the personal banker the types of deals they are looking for before you ask them for something. 9. Try to establish less than 75% loan to value in your deals that you take to the bank. (I will teach you how to limit the cash out of pocket later)10. One deal at a time. Do not try to take down multiple deals with a new bank. Do one, close it, make 3 payments and then inquire if they are willing to do another transaction.AH
Cris on 10 Apr 2008 at 2:37 pm #
Building a relationship with a source of money for your deals is important, OPM or bank money.
Mike on 10 Apr 2008 at 11:03 pm #
Bank relationships are very good. Eventually, after you build the relationship like you say, all you might have to do is make a call and get what you need… VERY POWERFUL