Today, Nate Armstrong explains why community banks and credit unions are beneficial for single family home deals.
Discover some of the reasons why small banks can help you as a real estate investor and also where to find the best banks.
Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com.
Nate: Now, if you’re a real estate investor or if you’re helping other real estate investors and making money off real estate somehow in the middle, if you want to get the best of banks out there, take my advice on this. Please work with small banks for single-family houses and credit unions for single-family houses.
Now, if you want to do the big commercial deals, by all means use the top tier banks, U.S. Bank, Wells Fargo, etc. I have accounts at both Wells Fargo and U.S. Bank. I love them both, but I do not love them for single-family houses. For single-family houses I’m way better off going to my community banks and credit unions.
So, why is that? Here’s why. The smaller banks get to make the rules inside their house. Meaning, if they have something like maybe you’re the borrower or I’m the borrower and we have an aggregate, that means a maximum allowable limit per person of $1.3 million, but then another deal hits our plate, internally they can decide if they want to exceed that or not.
When you go to the big banks, they can’t decide that. That’s stuff that’s regulated even beyond the local branch. It’s usually internal for the bank’s headquarters, and then furthermore, whoever they sell their loans to, which is usually Fannie Mae or Freddie Mac, Fannie Mae has this thing out there that says you can’t have more than 10 mortgages. Well, I own 107 rental properties. How on earth am I able to do that when I can only have 10 mortgages?
Well, that’s the myth that I want to talk about, number one. Myth number one for banking is that you can only have 10 loans as an investor. It’s totally not true. That’s just a Fannie Mae rule.
The reality is, the truth is that you can have infinite, infinite literally. You just need to go to small banks and credit unions, people that hold the notes on their books. It’s called they’re holding the note in-house. If they hold the note in-house, then that’s good for you. As an investor, you don’t have to worry about the rules of Fannie Mae or Freddie Mac.
Next, the myth that I hear all the time is that you can’t borrow money as your company or as your LLC. Totally not true. That’s only true for those big banks, the banks that sell those notes to Fannie Mae or Freddie Mac. The reality is that you can use your LLC or corporation to buy stuff if you work with a small bank or a credit union that understands you. Typically, credit unions want to build a relationship with you. So those relationships go a long ways. They really do.
When I was just a kid, I was 15 turning 16, I really wanted this snowmobile. So I went into my local credit union, Hermantown Federal Credit Union, and I asked the banker if they would give me a loan to buy the snowmobile. The banker said, “No. You’re not 18. It’s not going to work.” I’m like, “Well, who really makes the decision?” Then he said, “Well, it’s the Lending Committee.” And I’m like, “Who’s that?” He said, “It’s the bank president, and so and so, and so and so.” And I said, “Okay. Well, would you mind if I wrote a letter to them?” He said, “Sure. Go ahead.”
So I went home and I wrote out a letter. I wrote a letter about how I had a job and I pushed carts at the grocery store to make money and how I had income coming in and how I had a plan that I’d have this loan paid off within six months if they borrowed me the money. I wrote that letter. I included my pay stubs with it, so I showed proof of income, and I handed it back into the banker. The banker took it to the Lending Committee, and they approved that loan, no cosigner.
Probably should not have done it because I was not 18 years old, but the credit union was able to approve that loan because they can make decisions in-house. Now, albeit, it was a tiny, little loan. It was only $1,500 or so. But still, it shows that credit unions can bend the rules. They can make their own rules because it’s the lending committee that decides ultimately what’s going to happen.
So we’ve talked a lot about credit unions already. I don’t need to hit that point anymore.
Next, where do you find these banks? How do you know which community bank or credit union is investor-friendly? Because not all of them are. Sometimes you have to call five or six small banks or credit unions just to get the one that’s going to be the right fit for you.
How do I find them? I go to real estate investment clubs and I ask other people. How can you find them really fast? Well, right here on FlipNerd.com you can actually access a whole directory of real estate investment clubs around the country. Start there. Start pinging in those REI club leaders and ask them, “Hey, do you know any banks that are financing investors right now?” I find it to be a lot easier just to ask other people that are in the business who their bankers are, because they’ve already gone through the work of calling 10 or 15 banks to hear what the answers are.
So hey, I hope that this tip serves you, and I really look forward to seeing you next time here in the REI Classroom. My name again is Nate Armstrong, author of the bestselling book “Real Estate Gold Rush.” We’ll see you again soon. Thanks.
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