Why Small Banks ROCK.........

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Posted by brandoncbsre on May 06, 2008 at 18:20:43:

(I am reposting this from my response to another post. I really got long-winded but I believe my story is a good example of why investors can benefit from a good relationship with a small local bank. Since that seems to be a common topic here hopefully others benefit from the post. Good Luck to All


I have been working with a small bank (6-8 branches total) for about 15 months now, which is the same timeframe that I have been an investor.

My first deal with them was pretty straight forward. I bought a downtown style building which I renovated and leased to a business that I'm 20% owner of. I had to put down 25% as they only lend to 75%LTV. I was in a weird spot at the time.....I had been working since High School at a RV parts supplier. They gave us almost a years notice that they were closing the doors. I knew it was time to stop running my mouth and get off my arse. When I went to the bank I had completed a personal financial statement for them and brought a pro-forma for the building and my last 2 years tax returns. I failed to mention the job situation. It wasn’t that I was trying to be deceptive ........I had no intention of not repaying the loan.....so to me, it was a non-issue. So, that’s the first one. Bought it last Feb and had it renovated and leased May 1 2007.

Then last August I called them and said I had decided I wanted flip some houses. At the appointment I leveled with him right off the bat, "I Don’t have a job, not really looking for one, and I have another mouth to feed." I was expecting at best they would finance me up to 80-90LTV and I'd do the rehab on credit. He offered 75%LTV based on ARV at a half point over prime. The loans adjust every 90 days and are interest-only for up to 24 months. So I ended up buying 2 foreclosed homes, one in October and one in January. They didn’t even run my credit for the second one. On both of them I ended up with a touch over $20k for rehab and holding costs in the form of a line of credit. Pretty sweet deal from what I have read here. I have the houses finished and am just waiting for them to sell.

Last week I made an appointment to get approval to buy another downtown style building. It’s a mixed-use with a large storefront on the main and 3 apartments upstairs. I took in a completed PFS, 2007 tax returns and a pro-forma for the building. With this one I wanted to cross-collateralize with my first and have the seller hold a 10 percent second. The numbers were good and he called me today with a thumbs-up. It is contingent upon me selling flip #2 (i'll make more on #2 than #1). I'm guessing they added the contingency because I added it to my purchase agreement on the building. It was either that or make my offer contingent on buying my wife a bigger vehicle. She says I can’t buy another property until she get a new car and "SHE MEANS IT THIS TIME".....LOL. Anyway this deal should go through and it will be a no-money or very-little money down deal due to the seller second and cross-collateralization.

Now for some specific answers......My fico for the first one was around 720. I am one of those people who have NEVER been late on a payment......PERIOD. Because I financed a lot of the renovation for the first deal with credit cards (Chase convenience checks @ 3.99% and 4.99%) and a HELOC my score has slipped. I just ordered a Transunion score report so that I could present it with my offer to the seller. My score was 680ish, which is considered a "D" with the new scoring. Like I said with the second flip the bank didn’t run my credit and I don’t know if they did this time or not.

Business Plan?….. I didn’t need a written plan per se. I told him my goals and presented him with a pro-forma for each of the buildings. My recommendation is make an a appointment with someone and tell them what you have done and what you would like to do. See what they have to offer. If I had just asked for something specific on the flips I may not have got a product as good as what he offered.

Accounts? .......... You may not need an account to talk to someone. But, they will be more willing to work with you if you keep some money there. I was fortunate because I managed pick the most flexible bank for commercial lending in my area for my everyday banking years earlier. Dumb luck really.....they are the closest bank to my home. I guess if you currently bank a small bank talk to them first. Another idea would be to pay attention to the "financed by" signs on new commercial construction. Pick one that is local and on the smaller side.

I have no doubt that as time goes on they will continue to trust me with bigger and bigger chunks of capitol.

I hope this helps. If you have more questions just fire away.

Good Luck, Brandon


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