Grab the Map Podcast: Episode 6 (How to Make the Bank Never Say No)
John answers every email that goes to [email protected]. Today, we're discussing how to make sure the bank never says no. It can be intimidating to approach a bank. It appears as if banks don't lend money. Today, we'll discuss the secret to making sure the bank does not say no.
This is a process, and it does not work 100% of the time. Most of the time, you'll walk into three banks and one will usually say yes.
[02:45] You need a solid education for what the business plan is for what you're asking for, for the money. John usually asks the bank to lend money on a property, and he's asking for the money to be collateral for a period of time, while he collects rent and pays the bank back with the rent. He's not asking for money for a new car or boat. He's usually asking to buy something that's cashflow-generating. Present them with a business plan that results in cashflow. They need to see that the money you ask for will generate more money than it will cost you to buy.
[04:15] Practical example: if you buy a house for $50,000 (i.e. in Mississippi), calculate the debt serviced to the bank, taxes owed to the state and local government, insurance, maintenance and capital reserves to keep the property in good condition. After those expenses, you must be making money on the rent from that property. The more money you're making on that property, the less likely the bank will tell you know, because the more likely you'll be able to pay the loan back with interest. They want to lend you money on a deal that will cashflow.
[05:50] If you have trouble getting the bank's money, look at your deal. Don't ask for more money than will allow the deal to cashflow. Some people look for a bank loan hoping the money will keep them afloat until prices increase. Instead, show the bank a significantly undervalued property that is cashflowing very well after expenses. Ensure the asset will make you money.
[08:10] What would happen if the bank took the property back and had to manage that tenant? Bring the bank quality (i.e. renovated) properties. That means you can't spend all the cashflow on vacation or nice-to-haves. Save that cashflow into capital reserves and maintenance reserves, so you're prepared for a leak, for example, and the property remains attractive.
[09:55] Be a good borrower yourself. The banks will examine your assets and see what you bring to the table as a borrower. They'll see if you pay your bills on time and have good credit. The better the other two factors are, the less this is an issue. The more your property cashflow is “on the edge” the more they will examine your credit report. Do you pay late? Are you maxed out?
[11:10] Bring in property that cashflows, a great asset, and have a great credit history as the borrower.
What if you don't have great credit? Start paying your bills on time, talk to smaller banks, and let them to get you know as a person. Update your credit report to remove any negative items that don't belong. Pay down your credit cards.
[13:00] It's hard for a bank to say no to a deal with a cashflow property and great lender. They need to loan money to make money.
Consider making friends with other borrowers. Early in John's career, he obtained his first loan at a small bank due to a recommendation from a friend. Stop chasing shady “wholesaler” deals, research the numbers, fix up a property, and get its worth to 25% more than what it was when you first entered the deal, then approach the bank after you've fixed it up.
Be a decent borrower and have an attractive property that cashflows. Contact us at [email protected] or grabthemap.net.