May 28th, 2009
Dealing with Big Banks.
We are fortunate in the Twin Cities to have so many banking choices. I do my
retail banking at a Big Bank-they're close and I can ride my bike to the
drive up with the friendly staff. Years ago, when I decided to invest in
real estate, I went to the loan officer at the Big Bank and filled out the
I've never fit real well into anyone's boxes. They looked at their boxes and
said they would loan me $5,000. A partner from a Community Bank had recently
spoke for my consultants group and I called them. Gave them the same data I
gave Big Bank and they loaned me $150,000. Liking the bike through the drive
through thing, I keep my checking accounts at Big Bank and proceeded to
deposit my sale proceeds from my real estate investments. It gets noticed
and now the loan officer calls me and wants to loan me money for my next
deal. Even though they see my cash flow going through their accounts, they
still only look at the same boxes and won't loan me money. Which is fine
because I still work with Community Bank.
That "fit in the box mentality", though, is having a negative effect as our
real estate market starts to recover. I listed a lot in a neighborhood in
which most of the lots have been foreclosed on by a Big Bank. Which makes
Big Bank the Architectural Control Committee. And the person in charge of
this account is in California. And it was quite the effort to identify who
this person its. They don't even have basements in California. What is this
person going to know about approving the home design for a lot Big Bank
doesn't even own?
When it came to listing their land Big Bank consulted a couple Big
Commercial Real Estate Companies and, as typical, went with the one that
told them the highest price for the land-which isn't necessarily the right
price. And Big Bank refuses to sell individual lots. Which is where the
market is today. Meanwhile, you can hit a golf ball to the next development
and buy single lots. Which buyers will continue to do, one lot at time.
How long will it take for Big Bank to either get real on their bulk sale
pricing or sell individual lots? If they are going to sell anything they
need to find a way to respond quicker to offers. Buyers have many many
options and not much patience to wait for banks to take weeks, or I've heard
as much as 7 months, to respond to offers on bank owned property. And bank
owned properties are NOT always priced at bargain basement prices.
As to the Community Banks. Some tell me they have rented out the homes they
have taken back to cover their holding costs. And will sell them when the
time is right. Being Community Banks, they understand their market far
better than someone in California.