Packaging Yourself for a Loan

Your chances of getting the loan you want increase dramatically when you create a topnotch presentation for the lender

By Jordan Taylor

Imagine for a moment that you are a lender. You have millions of dollars that you want to lend to people so that you can profit from charging them interest while they use your money. But you only want to lend to people who can demonstrate their creditworthiness and who have collateral so that you are reasonably sure you'll get repaid.

Now imagine that you have two people who want to borrow money from you. One shows up at your office empty-handed, saying, “I've found a great investment property. Will you lend me the money to buy it?” The other shows up at your office with a complete loan package detailing the property, how much money he wants and under what terms, and providing evidence as to why you should feel comfortable taking the chance on funding this deal.

Which one are you more likely to lend money to? The answer is, of course, the borrower who is prepared with all the information you need to know to feel confident about making the loan.

The key to effectively packaging yourself for a loan is to put yourself in the lender's shoes, whether you're approaching a traditional bank, a hard money lender, a private investor, or another funding source. What would you want to know before you trusted someone with tens or hundreds of thousands of dollars of your money?

Elements of a winning real estate loan package

Here's to what to put in your loan request package:

• Title page. Keep it simple but personalized, such as “Loan Request made to ABC Community Bank by John Doe, XYZ Real Estate Investors, LLC.”

• Property information. Provide a general description of the property as well as the legal description. Include a map showing the location—this is easy to do with any of the online mapping programs. Provide photos of the property and include aerial shots if available. List the benefits and drawbacks of the property and location. Discuss the drawbacks strategically; what you want to do is send the message that you are aware of any problems and that the property is still a good deal. Include a copy of your accepted offer. Add any additional information or statistics that you have about the property or area.

• Property improvements. If this is a rehab, explain what you intend to do, how much it will cost, how long it will take, and what the eventual benefit will be. Include contractor estimates, payment schedules, and sketches—you don't need elaborate architectural renderings, just a clear representation of what you're going to do.

• Financial analysis of the property. Complete an Annual Property Operating Data (APOD) sheet that shows all income and expenses, and project the numbers out ten years.

• Property valuation. Demonstrate the value of the property today and after repairs using accepted methods of real estate appraisal, such as comparative analysis or replacement cost.

• Information about you. Tell the lender who you are with a one-page narrative resume that outlines your background, experience, education, and any other details that show you have the ability to handle the investment you want to make and repay the loan.

• Your financials. Include your personal financial statement that shows your net worth, along with two years of income tax returns.

• References. Provide names and contact information of people who can vouch for you, such as your attorney, accountant, title company, real estate agent, and other business associates.

• The specific loan request. Write out a narrative summarizing your loan request, such as: “Real estate investor seeking to borrow $150,000 at seven percent interest amortized for 30 years.” Add a statement indicating that you are open to alternative loan structures.

• The lender's application. Complete the lender's loan application, even though much of the information is already elsewhere in your package.

The final touch

When you have all your documents together, put them in a binder or two-pocket folder. Remember, neatness and image counts. This is a business presentation designed to show a lender why you are a good financial risk. Look at your final package objectively and ask yourself if you would make the loan—if you would, you're ready to take it to a lender. If not, correct whatever needs work and add what's missing.

Once you assemble your first loan package, you'll have created a template for future applications and will be able to reuse much of the information. Each package will get easier and faster to put together. And you will stand out in a very positive way because very few investors will take the time to present themselves in such a professional manner.

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Jordan Taylor is the editor of Cash Flow Generator® newsletter.