Five Strategies to Get Your Real Estate Investment Income Property Financed … Even in a Credit Crunch

News Flash: financing is getting tougher and tougher to come by, especially for real estate investors. However, when the real estate market faces challenges it may also present you with opportunities – but you’re probably going to need the cooperation of a lender to turn those opportunities into deals. What can you do to maximize your chances?

1. Get Real
Don’t expect to walk into a lender with a tiny down payment and have them even pretend to be interested in financing your deal. In hard times, lenders become “risk-averse.” One way to make them fall in love with your deal is to show that you have some skin in the game, that you are putting your own money on the table. Some of you – especially those who have read a ton of get-rich-quick real estate books or are trying to be a “creative” investor – don’t want to hear this, but you can’t expect the lender to take a risk in a tough market if you’re not prepared to do the same.

2. Check Your Facts
Do your due diligence and have it ready to show to the lender. Not only should you verify a property’s income by examining its leases, but you should also get an independent take on your local rental market to confirm that the rents are realistic. Visit rentslicer.com as a potential source of apartment rent data. RealtyRates.com should be able to give you info about prevailing capitalization rates in your market. RSMeans’ CostWorks can help you with construction costs if this is a development project.

3. Join the Pros
Consider joining one of the trade associations for your specialty. There’s NAA (National Apartment Association), and ULI (Urban Land Institute) to name just a few. Yes there are membership fees, but the data and trends you acquire can be a great help in building a successful strategy.

4. Sell Yourself
With investment property, a lender’s first concern is the viability of the property, but they’re going to be interested in you as well. This is where a detailed personal financial statement comes in. You should have it in a profession spreadsheet format and keep it current with all of your accounts, income, assets and liabilities so that it’s ready to update and use whenever to need to seek financing.

5. Make Your Case
I can’t tell you how many emails my company gets that say something like, “I saw a building on LoopNet that is listed for $500,000 and the NOI is $95,000. What kind of financing can I get?” You need to give me more to work with than that. You need to build a professional presentation to show the lender the ACTUAL financial details of the project.

For income-property investments you should provide at minimum, the last two years’ ACTUAL (not proforma or projected) income and expense statements and a current rent roll.

Make sure you write a good, solid Executive Summary. This will give the lender an overview of the deal. As the deal progresses, the loan officer or banker will ask, “How did you come up with this projection?” or “Where did these numbers come from?” That is when you start pulling out detailed reports to support your projections. You’ll not only answer the questions, but you’ll also demonstrate that you have a firm handle on this deal and you know what you’re talking about.

Of course, not every deal is going to qualify for financing, and that’s true even in non-crunch times. Still, you can stand out from others who are competing for limited funds and maximize your chances of success by using the kind of thorough, professional approach I’ve outlined for you.