At our Jumpstart Your Real Estate Investing Mastermind a LLP-er asked an interesting question: Why don’t bankers (lenders) invest in real estate? Being a know-it-all, I (John) tried to answer this question based on my own assumptions. Obviously the answer was from my perspective and opinion. In being able to share the best possible answer, I decided to solicit advice and feedback via my professional LinkedIn network. In total I reached out to five people in the banking industry: a Senior Mortgage Consultant, Senior Mortgage Loan Officer, VP Retail Mortgage Loan Officer and Vice President of a bank. Who better to response to this question then industry professionals! I sent everyone the same email:
Hi _____________, I’m a landlord and local investor who also writes a blog: http://lifelibertynproperty.com/ a question came up in our recent mastermind group and I wanted to ask your insight as to” How come bankers/lenders don’t invest in real estate? Any feedback would be very helpful! John Delia
One person was okay with us reveling his information so we haven’t blocked it out! This is not a sale or marketing pitch for him. Both answers are very valuable!
We received two answers back and have shared them here:
Answer One (Transcript):
“Hey John, Thanks for reaching out to me and that is a difficult question to answer (assuming the premise is correct). I suppose it can come down to of not having “all of your eggs in one basket” with investments and exposure. If you are a lender on real estate, you are already deeply “invested” in the real estate market already. Your career and earnings are tied to how the real estate market performs. So maybe bankers prefer to spread that risk to other forms of investments that are more liquid like stocks. But I do know some folks in the banking industry who hold real estate. I think it is prudent to have a well rounded portfolio of investments and not too much exposure in a single type. I don’t know if this answers your question directly but it’s the best response I can think of.”
Answer Two (Transcript):
“John, I appreciate you reaching out and will do my best to answer your question. I can only speak for myself, and say that I have been investing in real estate for much longer than the 15 years I have been lending. I will likely continue to invest long after I stop lending. I would strongly suggest that any investor seeking a loan ask their Mortgage Loan Officer what investment experience they have. If the LO (Loan Officer) answers that they own just their own home or, worse yet, they have never bought, then it is time to seek out some experience. I do not say this because I feel anybody who hasn’t owned investments is incapable of doing a loan. I am sure that lots of loans do get closed in this fashion. The problem is when there is any other flavor to the deal besides Vanilla, the inexperienced loan officer cannot solve problems like a seasoned LO that has encountered 100’s of bizarre turns along the way. I hope that helps, many of us do invest and can share our knowledge with new investors. Brian Hitchcock First Financial Bank NMLS # 462132 Talk Text E-mail Brian@614-260-5537.com”
So there you have it folks, the results are in!
These answers smashed my assumption and our fellow LLP-er’s question out of the park. We both assumed that bankers and lenders do not invest in real estate, apparently this can be a false premise. Just as with anyone else, different professionals may have differing opinions and approaches. We really resonated with Brian’s answer – if you are seeking an investment loan, it would be prudent to ask about the potential banker about his or her real estate investing experience.
If you have any other tough to answer questions, let us know! If we don’t know ourselves, we will be sure to reach out to our network to bring the answer to you.