Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing why building relationships with small banks and credit unions is imperative when investing in commercial and multifamily real estate.
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Welcome to Strategy Saturday, I’m Charles Carillo. And today we’re going to be discussing why local banks and credit unions are crucial when investing in multi-family real estate, small banks and credit unions are required for smaller commercial properties and multifamily properties with five plus units. And with loan sizes under a million dollars, they’re also required for unstabilized properties. That’s properties with less than 90% occupancy, possibly also for properties with many months to month tenants. So large lenders like Fannie Mae and Freddie Mac. They want to see a $1 million minimum loan amount. They want to see most tenants on an annual 12 month lease, and they want to see the property stabilized. That means occupied 90% plus small banks and credit unions are most likely to make portfolio loans. They’re usually keeping the loans on their books, not selling on the secondary market. They determine what they want to hold and how much underwriting is necessary to approve them.
The fees are minimal with small banks and credit unions. Now, if you’re going through a broker, they might be a little higher. The process is typically simpler to be approved for a loan loans are recourse, which means your personal assets will be liable. If you don’t pay alone, certain banks will all kinds of creative financing options, cash out, low down payment, portfolio loans, et cetera, but you need to have a relationship. Small bank and credit union lending is driven by relationships. You need to start building and regional relationships right away. So a few things about credit unions. They’re not lending in a box, okay? And you’re building a relationship with someone there that’s going to handle all of your lending needs into the future with federal credit unions. There’s no prepayment penalties allowed by law, which is awesome. Usually more reasonable fees, especially when rates drop whose money are you actually borrowing.
You need to recognize that credit unions will handle small business lending. They’ll lend on multi-family small and large they’ll handle financing. Commercial real estate cooperative credit unions are small credit unions that work together with larger credit unions to fund loans. They’re more in touch with our communities. There’s less bureaucracy and credit unions do not tend to merge, which is normal with commercial banks. Some States prohibit credit unions from charging prepayment penalties on certain loans. Banks will have prepayment penalties on loans that are usually 5% to 1%, depending on how long the term is and what year you’re prepaying it or paying it off. How do you find small banks and credit unions? So search Connie record websites in your area and discover which banks are loaning to other investors owned by a non-owner occupant and loans done within the last 12 months with this especially important with COVID.
You want to make sure that they’re lending in the similar price range of what you want to buy. Then reach out. You can also speak to real estate agents, local investors, meet them at networking events. You can speak to title companies, property managers, cold calling all small institutions within an hour drive of the property. I’ve done that before. And I found great banking relationships because I reached out after locating all small banks and credit unions in my area. So avoid scams, there’s tons of lending scams on the internet today, ask for references, ask what properties they have recently loaned on and verify via the County record websites, okay. That they actually were the lender. Don’t pay upfront fees to the lender. Now certain hard money lenders and stuff like this is a third usually going to, or they might charge you some sort of inspection fee or something like this.
When coming out to a property that’s a little different I’m talking about when you’re speaking to a lender, they’re usually paid on performance, which means they’re paid when the loan closes always verify that representative you’re working with has actually done a loan for similar property. I’ve made this mistake before and I would not making in the future. So always verify who they put you with actually has experience with getting loans for properties that you’re trying to get a loan for. Always get the HUD one. The closing statement before days before is the best. The closing to review always confirm the fees throughout the process. Leverage is gone. If you get the HUD one at closing, right? Because you can’t review the rates and what it is, there’s no time to change anything. So get it as soon as possible. It’s usually a few days before closing or a couple days before closing, and you can go back to your rep and the bank. If there’s fees in there that you didn’t agree to, or you weren’t aware of term sheets from credit unions and banks should be marked and sent back for renegotiation. So I send you a term sheet for proposed loan. You can Mark it up and send it back and let them know what you would feel more comfortable with and what you want to see. So thank you so much. Please remember to rate, review and subscribe, submit comments and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then
Nothing in this 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 are 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 Superstar incorporated exclusively.
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