AH BANKS! Pardon My French – Part 2

Given that it has been 2+ years since we went through the process of purchasing our primary residence (and the Pensacola real estate market seems to be recovering), I was optimistically hopeful dealing with banks wouldn’t be as painful this time around…boy was I wrong!

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real estate investing Pensacola

In AH BANKS! Pardon My French – Part 1 I discussed our primary residence purchase and the struggles of doing business with our chosen lender. Below is a recap of our conventional loan process to purchase a long-term duplex rental property in Gulf Breeze.

Given that it has been 2+ years since we went through the process of purchasing our primary residence (and the Pensacola real estate market seems to be recovering), I was optimistically hopeful dealing with banks wouldn’t be as painful this time around…boy was I wrong!

Our Gulf Breeze Long-Term Rental Property Purchase:

  •  Down Payment of 20% (check)
  •  Credit Score of high 700s, low 800s (got it)
  •  Pre-approved with a regional Credit Union with a large local presence and really good interest rates (check)
  •  Occupied? Yes, both units of this duplex are under long term agreements with no indications/desires to leave.

A side note: while many Pensacola realtors require you to be pre-approved before showing you a house, you can certainly find realtors who don’t require this proof. Just know, obtaining pre-approval shows the realtor you’re serious about buying and typically is painless (mostly just a credit score check by your lending institution).

 

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Timeline (the boring details):

  • February 24: Pre-approval received from chosen Pensacola credit union
  • February 27: Entered into contract with a 30 day close date. Escrow provided to closing agent and copy of contract sent to our chosen Pensacola credit union.
  • March 7: Loan application process started (YAY!!)
  • March 14: I followed up with the CU to see how things were processing and promptly received “We are all set for now.” Hearing this during AH BANKS! Pardon My French – Part 1, my internal warning sirens start to go off.
  • March 22: paid for property appraisal through the CU
  • March 28: received confirmation that all initial qualifying documents were received and will now go through pre-underwriting process. Unfortunately this was accompanied with a need to extend the closing to May 9th. of which the seller did not want to do. Thanks for a great realtor for making this happen but my internal warning sirens are starting to get louder.
  • April 1: my loan application is transitioned from the Loan Officer to now the Loan Processor
  • April 12:  no communication in weeks, I receive notice that my loan processor is working toward final loan approval.
  • April 21: where the real fun begins…the loan processor comes back to ask me for previous years tax statements (which I’ve already supplied) and to let me know the appraisal has not come back yet. Since we’re 30 days past from when the appraisal was ordered, no sign of it being completed was frustrating. What’s even more frustrating, the Loan Processor didn’t know what to do. C’mon man?! I immediately sprung with questions like: Who ordered the appraisal within your firm? What’s there #? Who’s your boss? Who can we escalate that to? Give that to me and I’ll do it!
  • April 27: ONE WEEK LATER! The appraisal was finally received, but WAIT, there’s more! We still need your most recent tax return!  Ummm….no you don’t. I’ve uploaded to your portal twice now and receive the thumbs by your boss twice now Ms. Pensacola Loan Processor. Here I’ll upload again for you, just so you don’t have to look for it. There, you see the date of today’s date on the document in the portal? That’s it. Click on it and tell me if that’s what you’re looking for! Needless to say I was pissed.
  • May 1: I start daily calls to the Loan Processor and to the Branch LO Manager to receive status updates. If they don’t answer, I leave them voicemails and start emailing them, CC’ing their bosses. Not to mention my Pensacola realtor and his team start dialing their way up the CU’s corporate chain.
  • May 7: after a week of daily phone calls, emails, and borderline harassment for someone to take my business, I finally receive the good news my loan application was approved. However, “due to new regulations…. there is a 3-day seasoning that has to happen, putting your close date on May 10”. Again, here is where having a great realtor on your side helps. They kept this deal together.
  • May 10: Closed. Two and half months after going under contract, begging this credit union to take my business, we finally closed.

If you’re exhausted from reading this, I don’t blame you. I let a couple months go by before typing it up and I’m just as exhausted reliving this horrifying lender experience. At one point during this process, I felt like Mr. Regional Credit Union was enjoying messing with me. They wanted to show me who had the power.

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Now that I can sit back and non-emotionally reflect, part of me still believes that, but part of me really believes the process is just that broken. I feel for the branch managers and loan processors as their lives are more stressed from guys like me because their system is broken.

Bottom line is this: If this is the new norm for lending institutions, then our buy & hold strategy is going to be a gold mine. Even with continued lower rates, banks and lending institutions are continuing to make it more difficult to do business with them.
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Purchasing Our First Duplex

Up until this point we’ve only invested in single family homes, but as we keep doing our research, small multi-family (MFRs) are the way to go.
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purchasing first duplex real estate investing pensacola fl

We looked in the Pensacola area for 12+ months and made offers on 3 other MFRs before we found one that fits our investing criteria. I was so anxious to get in a MFR at times I found myself compromising on our #s – trying to convince myself the #s were ok, they’ll improve later.  They were not ok and we’re not doing this to be just ok. Compromising on the #s is a no-no and this has been a great discipline exercise for me and great display of patience (which I rarely have – I must be getting older/wiser). As we stuck to our investing criteria, we finally found one. And I’m not just talking about a good deal, I’m talking about a great deal; at least it looks like that on paper :).

Excitement. What makes this such a great deal?

  1. Cash Flow. This Gulf Breeze duplex is expected to cash flow way better than our investment criteria require. I couldn’t wait to close on it and have the revenue coming in.
  2. Expanding: Our portfolio was expanding and so was our net worth.
  3. Subdivide Lot = Extra Cash Flow. This duplex is on a lot big enough to be sub-divided (which we will eventually do). This area of Gulf Breeze is zoned for many uses, so very little investment on the sub-divided property should yield a few extra hundred dollars more in monthly cash-flow. Another option is to sell off the subdivided lot, lowering our cost point on the duplex.

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Struggles. As-in, things that made me question what we’re doing.

  1. Patient to find a good great deal.  Now that we’ve found a great deal, this will be easier for me to repeat the next time.
  2. Banks/Mortgage Brokers. This probably goes without saying but I’d rather someone dig sand out from underneath my toe nails with a spoon vs. working with Banks/Mortgage Lenders . We have a great credit score, we have the down payment, W2s, etc, but I just felt like I was chasing them  –take my business please!!! Can’t quiet understand why they weren’t chasing me.
  3. Postponed Closing. Even though I finally caught a lender by the tail and started the process of ensuring financing with them a few days after we went under contract, it took 3+ months for them to pull everything together. The Gulf Breeze seller wanted to pull out, but thanks to my realtor for calming the seller down and bringing him back in. This was a new relationship with this bank and I’m hoping this doesn’t happen with our next acquisition. If it does, at least I’ll be used to it – they have REALLY good rates.
  4. Choosing a property management company. Gulf Breeze is a bit of a drive and with our portfolio expanding, I thought its best to bring on some extra help. I called 4 different property management companies (top hits from Googling ‘Pensacola Property Management’) and went with the only one that called me back. Luckily, they have impressed us thus far with their availability and response times.
Verification Process. There are a few things we wanted to verify about the duplex and made our contract contingent upon. The previous owner provided all of this. They are:
  1. Verified Rent Roll. We wanted to make sure the tenants were paying at least the amount of rent we used in our calculations to underwrite the deal. They were actually paying a little more.
  2. Current Tenant Rental Agreements. We also wanted to ensure what the current rental agreements look like as we would inherit those (at least until they expire) with the purchase. We also wanted to be aware of any security deposits the tenants paid that will need to be transferred to us at closing.
  3. Maintenance History of Each Unit. Just another verification step we took to ensure we weren’t acquiring a property that had a bunch of deferred maintenance.

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As the months roll on and this property produces like expected, I’m certain our Excitements will make me easily forget our Struggles. Like a new parent who struggles to get through the first 6 months, I’m hoping we quickly forget the stress and zombie feeling of being new parents.
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