Banking Relationships

A great source for buying property is through banks. If you have some
good deals, a good business plan, and some good credit, getting funds
from a bank may enable you to buy property without putting any of your
own money into the deal.
Here’s how I bought over 100 properties without using my own money:
I went to a bank and got a $100,000 line of credit secured by my own
house. The bank also agreed to do 15-year loans on any property I
owned at a 75 percent loan to value. That is, if a house had a value of
$100,000, the bank would lend $75,000 (75 percent).
For example, I would find a deal that was worth $100,000 from a motivated
seller who would sign an offer to sell it to me for $70,000. I would
use the bank’s money (the line of credit) to pay the seller cash of
$70,000. One month later, when the house looked better and I had
rented or lease-optioned it, I would ask the bank for a permanent 15-
year loan. The house would appraise for at least $100,000. The bank
would lend me $75,000 (75 percent), which I used to pay off the loan,
or put back into my line of credit. Then my line of credit was back at
$100,000 to pay cash for another house. Not one cent of my own
money was used. Caution: Never borrow money you are not positive that
you can pay back. Also, be careful about borrowing against your own
home; if the loan is not paid back on time, you could lose your home.
If you do not have great credit or the ability to do this, find someone
who does have that ability. Whatever you lack in business, find someone
who can help you. You probably know or can find people who want to make money in real estate and have great credit, but who don’t have
the time, energy, or knowledge to make it happen. You can develop the
knowledge and use your energy to find the deals. Let others borrow
the money. You can partner with them 50-50, 60-40, 70-30, or whatever
works for both of you.
Always make sure you have a good deal lined up before you borrow any
money. Have a built-in cushion, too, as well as an exit strategy. If someone
else is borrowing the money for your deals, make triple sure it’s a
good deal.
Also begin establishing good relationships with a bank. When I started
out, I went to the bank almost every month to ask for a loan. Every
month the answer was no. Then, the fifteenth time, the answer was
maybe, and soon after it was yes. The bank gave me a $50,000 loan on
a duplex worth $80,000.
At that time, I had more money on deposit in the bank than I was able to
borrow. But the way banks work, after you borrow once, you can borrow
again—and then again. You may find that when you borrow only
$100,000, the bank doesn’t really care about you. But when you borrow over $1 million, the bank cares! Loan officers start calling—how are
you feeling, how’s business, let’s go to dinner, and so on.