SS232: The Importance of Lender Relationships

SS232: The Importance of Lender Relationships

Lenders are real estate investors’ largest partners, and their relationship with the investor can directly impact the success of your deal. In this episode, Charles discusses the importance of lender relationships and why investors with stronger lender relationships have a higher probability of success. 



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Talking Points:

  • Over the past few years, lender relationships have been put to the test with the increase in interest rates and lenders becoming more conservative, as many loans and properties that seemed like good deals in 2021 and 2022 have now become underwater. 
  • When speaking with other commercial real estate investors who are navigating this challenging time, one recurring theme in our conversations is the importance of lender relationships. Investors with strong relationships with their lenders are more successful in creating loan modifications and workouts compared to novice investors who spread their loans across multiple lenders or have only one loan with a single lender.
  • Let’s break down some of the key points on why investors should establish and maintain strong relationships with lenders.
    • 1. Credibility. When you are putting in an offer on a property, financing is always a primary deal point for sellers. Sellers are likely to feel more comfortable working with a buyer who has a history of working with the lender for several years across multiple properties rather than a buyer who has never closed a loan with the proposed lender. It will help you secure more Letters of Intent (LOIs) and increase the number of offers accepted, even if you are not the highest bidder.
    • 2. More Favorable Loan Terms. Lenders, especially smaller local lenders, are more likely to customize loan offerings to clients with whom they have a relationship. I knew someone who secured a 5% downpayment loan from a bank for an apartment building based solely on their relationship. I myself received a 25-year term loan on a commercial property due to my relationship, whereas a 10-year term is typically the maximum, and they split the appraisal fee with me.
    • 3. Increased Chances of Approval. If you have already closed a deal or deals with a lender, and those loans are in good standing, the chances that your loan officer will advocate for you with the credit committee are much higher. Lenders don’t like uncertainty. Those performing loans and your relationship with the loan officer will help to secure future approvals. 
    • 4. More Streamline Approval Process. The lender is already familiar with your financial profile and your history. A significant amount of loan underwriting time is spent waiting for documentation from the borrower. They already have your information, most of the supporting documentation, and so on, so paperwork is minimized, which helps expedite the approval process. Moreover, since the loan officer knows there is a high probability that your loan will close, they are more willing to spend additional time with you and on your file to accelerate the approval.
    • 5. Willingness to Assist During Challenging Times. This circles back to what I discussed earlier about how your relationship with the lender will help you navigate difficult times. They can achieve this by extending your loan, restructuring your loan, deferring payments, offering interest-only payments, or implementing other alternative financing arrangements. This can make the difference between losing a property, losing the cash invested, and harming your credit to completing the property, selling it, paying off the mortgage, and recouping some or all of your investment. In other words, the lender relationship could make or break a problematic deal.
  • To establish long-term lender relationships, begin by contacting local banks and credit unions in your target market. To learn more, check out episode SS15, where I discuss the importance of local lenders when investing in real estate.
  • Furthermore, don’t think that lender relationships are only crucial to buyers and sellers of property. If you are passively investing in real estate, in addition to asking about the proposed financing terms, also ask about the sponsor’s relationship with the lender. Sponsors with solid lender relationships will typically have more influence on the institution than a one-off borrower. Remember that your lender is your largest partner in the deal, and lender relationships are more than just securing one loan; they are about building a lasting partnership.

Transcript:

Charles:
In real estate, it’s not always about the money, sometimes it’s about the relationship. Strong lender relationships are like cheat codes in real estate. They unlock better terms, faster approvals, and serious flexibility when the lending environment turns south. Welcome to Strategy Saturday, I’m Charles Carillo, and today we’re discussing the importance of lender relationships. Whether you’re a seasoned investor where you’re just starting out, knowing how to build trust with lenders can be the difference between getting your loan approved or getting left behind. So over the past few years, lender relationships have been put to the test with the increase in interest rates and lenders becoming more conservative. As many loans and properties that seem like good deals in 2021 and 2022 have now become underwater deals. And when speaking with other commercial real estate investors who are navigating this challenging time, one recurring theme in our conversation is the importance of lender relationships.

Charles:
Investors with strong relationships with their lenders are more successful in creating loan modifications and workouts compared to novice investors who spread their loans across multiple lenders or have only one loan with a single lender. So let’s break down some of the key points on why invest should establish and maintain strong relationships with their lenders. So number one is credibility. Now, when you’re putting in an offer on a property, financing always a primary deal point for sellers. Now, sellers likely are gonna feel more comfortable working with a buyer who has a history of working with a lender for several years across multiple properties, rather than a buyer who has never closed a loan with a proposed lender. It will help you secure more letters of intent. Lois, increase the number of offers accepted even if you’re not the highest bidder. Number two is more favorable loan terms.

Charles:
Now, lenders, especially smaller local lenders, are more likely to customize the loan offerings to clients with whom they have a relationship. I knew someone who secured a 5% down payment loan from a bank for an apartment building be solely on their relationship. I myself received a 25 year term loan on a commercial property due to my relationship, whereas a 10 year term is typically the maximum and they split the appraisal fee with me. Number three is increased chances of approval. If you’ve already closed a deal or deals with a lender and those loans are in good standing, the chances that your loan officer will advocate for you with the credit committee are much higher. Lenders don’t like uncertainty. Those performing loans in your relationship with a loan officer will help to secure future approvals. And this is extremely important right now as well because there’s been, over the last few years, there’s been a ton of fraud.

Charles:
We just refinanced the property and it took so many months because of all the different fraud checks that they’re now putting in place. So having that pre-existing relationship and having someone on the inside advocating for you is the way of getting and securing future approvals. Number four is more streamlined approval process. Now, the lender’s already familiar with your financial profile and your history. Obviously, they’ve already loaned to you and a significant amount of loan underwriting time is spent waiting in documentation from the borrower. They already have your information, most of your support and documentation and so on. So paperwork is minimized when working with the same lender, which helps expedite the approval process. Moreover, since the loan officer knows there is a high probability that your loan will actually close, they’re more willing to spend additional time with you and on your file to accelerate the approval through.

Charles:
Number five is the willingness to assist during challenging times. Now, this circles back to what I discussed earlier about how your relationship with the lender will help you navigate difficult times. They can achieve this by extending your loan, restructuring your loan, deferring payments, offering interest only payments, or implementing other alternative financing arrangements. And this can make the difference between losing a property, losing the cash invested and harming your credit to completing the property, selling it, paying off your mortgage and recouping some or all of your investment. In other words, the lender relationship could make or break a problematic deal. Now to establish long-term lender relationships, begin by contacting local banks and credit unions in your target market To learn more, checkout episode SS one 15 S one 15 where I discuss importance of local lenders when investing in real estate. Furthermore, don’t think that lender relationships are only crucial to buyers and sellers of property if you are passively investing in real estate.

Charles:
In addition to asking about the proposed financing terms, also ask about the sponsor’s relationship with the lender. Sponsors with solid lender relationships will typically have more influence on the institution than a one-off borrower. Remember that your lender is your largest partner in the deal. And lender relationships are more than just securing one loan. They are building a lasting partnership. So I hope you enjoyed. Please remember to rate reviews, subscribe, submit comments, and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at Syndication Superstars. That is syndication superstars.com. Look forward to two more episodes next week. See you then. You

Speaker 2:
Always want to invest in real estate but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding, and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties in great locations that provide us with consistent passive income while we wait for appreciation in the future and take advantage of tax laws while we’re waiting. And unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out invest with harborside.com. If you like the idea of investing real estate, if you like the idea of passive income, partner with us@investwithharborside.com. That’s invest with harborside.com. This

Speaker 3:
Episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and our subject to all applicable laws. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication Superstars, LLC exclusively.

Links Mentioned In The Episode:

  • SS115: Prepayment Penalties on Commercial Loans

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