Banks are needy. I don't have a better way to describe them. They need constant validation that you aren't going to abandon them. Banks are also very finicky. In light of the world pandemic, financial institutions are putting landlords through more hoops when it comes to annual verifications and refinancing. The one thing that I can say makes landlords look good to banks is being organized, which in turn makes you responsive and they like getting answers fast. Organization is a concept that comes second nature to same and is an uphill battle for others. Though organization is an achievable endeavor, it does take mindful effort.
Banks thrive on paperwork. They answer to federal entities, so when they are underwriting a loan or going through the motions on an annual financial check of the borrower, they have to make sure their loan file looks good. The information though is held by the borrower (landlord).
You may have several loans with one bank, but banks require paperwork for each loan. Banks commonly look for the following documents:
Year to Date Operating Statements: This is also referred to as the Profit & Loss (P&L) statement and shows the cashflow of the building, what is left after expenses are paid. Depending on when the request is asked this could be the same as the Calendar Year Operating Statement.
Calendar Year Operating Statements: This covers January through December and show the annual profit or loss for the year.
Business Tax Returns: If you hold title to these properties by yourself or in a single member LLC then this return will be the same as your personal return. If the property is owned by a partnership, multi-member LLC or corporation, then a separate return will be requested.
Personal Tax Returns: This will be for all owners.
Current Rent Roll: A list of tenants, unit numbers, move-in dates and currently monthly rental obligations.
Real Estate Schedule: A real estate schedule (RES) is a list of real estate owned by each person who is a borrower on the loan. The RES usually includes the following information:
Legal Owner Name
Individual's Percentage of Ownership
Fair Market Valued (usually estimated)
Mortgage Lender Name
Mortgage Interest Rate
Mortgage Principal Balance
Monthly Mortgage Payment
Monthly Rental Income
Personal Financial Statement: The Personal Financial Statement (PFS) is a snapshot of the individual. It usually includes:
Current Residential Address
Annual Income (W2, business profits, passive income)
Cash on Hand (bank accounts, investment accounts)
Personal Debts (home mortgage, car payments, credit cards)
Questionnaire: Questions about any criminal convictions, pending lawsuits, or any other loans you are a co-signor or personal guarantor on.
For annual financial document requests the landlord will usually turn over the prior year operating statement and tax returns, along with a current rent roll. If the landlord is refinancing or buying a property, then the bank will usually ask for 3 years worth of operating statements for other properties or businesses and tax returns. Banks will provide their own real estate schedule or personal financial statement forms, but you can usually repurpose ones you recently did, even if they are from another bank (I suggest taking off the logo of another bank's forms though). For RES I suggest creating your own in an spread sheet and updating it each year.
When refinancing or underwriting an original loan, banks will also ask for:
Proofs of Insurance
Operating Agreements/ By Laws
Articles of Organization/ Incorporation
Property Tax Bills
State Filings for Business Entity
Proof of Tax ID (EIN)
Questionnaire- created specifically by the bank and varies by building type. Usually has questions about the history of the building, its age, dates of capital improvements, etc.
Whether you are new or old to real estate, sophisticated or unsophisticated in the world of real estate, keeping your files organized and readily accessible impresses all loan officers. Now, if your building is not cash flowing, you are over leveraged or you are living beyond your means, no matter how organized you are, a bank will likely not want you and may even call your loan.
The first steps in all aspects of life comes down to being organized. Here are some tools I suggest every landlord embrace, even if they have a property management company that does their paperwork:
Spread Sheets- I use Excel, but I know lots of people that rely on Google Sheets. Create a master database that includes all pertinent information.
Cloud Storage- I mainly use DropBox, but use what software you like that can be accessed and files shared from with relative ease on a smart phone or tablet. Have your own set of files- property tax bills, mortgage statements, insurance policies, leases, etc.
Email Folders- How you organize your email folders is wholly specific to you the person. It can be by building or you can do it by expense, or both. I don't want to bore you with hierarchies of organization possibilities.
Paper Files- I try to be as paperless as possible, but paper happens. Similar to email folders this can be personal. I suggest a drawer or section of a filing cabinet dedicated to a building and some folders within it for expenses, projects, complaints/ claims, etc.
Being organized saves you so much time in the long run. It makes doing business much easier and spares yourself unnecessary aggravation. Banks are difficult enough, don't let disorganization be a hangup in getting a loan or refinancing a loan.
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