JF1929: Using Credit Union Loans For Real Estate Investments with Mark Ritter
Mark is a credit union and business lending expert. He’s joining us today to talk to us a little bit about credit union loan products. Sometimes people are not aware that credit unions loan money for real estate investments. Mark will tell us how to approach credit unions and what the pros and cons of using them are. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Do what you know and understand the product that you’re getting into” – Mark Ritter
Mark Ritter Real Estate Background:
- CEO of MBFS and an expert in credit unions and business lending
- Ran a business lending program that was #4 in the country among federal credit unions in number of loans funded
- Based in Berwick, PA
- Say hi to him at https://mbfs.org/
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Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, I’ll be your host today. Today we’ll be speaking with Mark Ritter. Mark, how are you doing today?
Mark Ritter: Great! I hope you’re doing well. Thanks for having me on.
Theo Hicks: Absolutely, and we appreciate you coming on. I’m looking forward to learning more about what you’re focused on. Before we get into that though, a little bit more about Mark’s background. He is the CEO of MBFS and is an expert in credit unions and business lending. He ran a business lending program that was ranked number four in the country among federal credit unions in the number of loans funded. Currently based in Berwick, Pennsylvania. You can say hi to him at mbfs.org.
Mark, if you don’t mind, could you tell us a little bit more about your background and what you’re focused on now?
Mark Ritter: Sure. I am in the business lending and primarily commercial real estate and residential investment lending business, and I am a native of central Pennsylvania. I got into credit union business lending when it was a spec of dust in the lending market. When I got into the credit union business lending there was just a few million dollars of business loans in Pennsylvania where I’m located, and now there’s multi-billions.
Today I’m the CEO of a company that is owned by ten credit unions, and we work with dozens of credit unions all throughout the nation. Essentially, what we do is run the credit union business lending program and help them make loans for commercial real estate and investment real estate, and we also work with investors, businesses to connect and get them loans through the credit unions. Our biggest challenge today is sometimes people say “What do you mean — I can’t believe credit unions do that. I didn’t know.”
Theo Hicks: Yeah, so for those people that don’t know about credit union loans, do you mind telling us a little bit about the types of the loan programs that a commercial real estate investor can secure from a credit union, and how that’s different from your standard Fannie Mae/Freddie Mac loans?
Mark Ritter: Sure. First, I’ll step back one moment… A lot of people say “What exact even is a credit union?” A hundred million people in America today belong to credit unions, and sometimes they’re just a place where your parents signed you up, or you signed up there because you worked at a particular organization, and they’ve really grown and expanded quite a bit… So what a credit union is is just a cooperative financial institution. We are owned by the membership, we’re run by a board of directors elected by the membership, and over the years many credit union members have real estate investment needs… And we do small, 1 to 4 family residential property loans; maybe you’re just starting out. Last year we did financing up to 30 million dollars for class A office space in major markets, and everything in between.
One of the nice little niches about us that I love to tell people is when you work with a credit union nothing we do ever has a pre-payment penalty, and that’s for every federal credit union if you work with one; they can’t put a pre-payment penalty even if they want to. So we’ve just had quite a big drop in rates, and our people and loans have the flexibility to make that a moving target, and you’re not locked into the loan in this declining rate market.
Theo Hicks: Do you guys do loans on apartments?
Mark Ritter: Certainly. We do apartments, we do multifamilies, we do warehouses… We work with dozens of credit unions here at MBFS, and have networks with hundreds of other credit unions throughout the country. So when somebody asks “Do we do something?”, the odds are yes, in our network of people.
Theo Hicks: So if I am a multifamily investor – let’s say I’ve got a 30-unit building that is currently stabilized, and I want to do some sort of value-add renovation program to it… Do you guys have loan programs that include those rehab costs?
Mark Ritter: Sure. We do consider the as-is value today, renovation costs, along with taken into what the as-completed value will be.
Theo Hicks: When you are qualifying someone for one of these loans, what are some of the things you look at? Going back to the example – if I bring you that deal, what information do you need from me in order to qualify me for a commercial loan on that 30-unit?
Mark Ritter: One of the things that’s a little bit different about credit unions, even as you move up the food chain in commercial lending, is we wanna know who we’re dealing with. We’re not just simply a Wall-Street fund or an investment company, a life insurance company. We want to know who you are and your story… So we’ll sit down and have coffee, and if you wanna come in and meet the CEO of the company, that usually happens. So it’s much more of a relationship-based program, even for a seven-figure loan request. And past that, I hate to say it, but my dollar is the same as everybody else’s dollar.
We’re looking for the financials of the property, we’re looking to learn about you, we’re looking to learn about your experience… Our underwriting process is pretty similar to many community banks, regional banks, but where we differentiate ourselves is to be able to have those conversations on the story of what you’re looking to do, rather than just looking at cold, hard numbers and spitting out a loan request to you.
Theo Hicks: I know for community banks and for regional banks the more loans you do with that bank and the more you get to know them, the better loans you’ll get, the more opportunities you’ll get for refinances, and things like that. Does that hold true for credit unions as well?
Mark Ritter: Certainly.
Theo Hicks: Are the terms very flexible compared to the rigid standards of your agency debt?
Mark Ritter: Absolutely. Much more similar to a large community bank, kind of the smaller regional banks – very similar lending process. That first one – I always say it’s kind of like the eighth-grade dance; we’re staring at each other and nobody knows what to do. Then after a little bit, let’s get things moving and get to know each other. The second deal is obviously much easier than the first, and we do look and value that relationship.
One nice thing about the credit union community is that it’s a very cooperative community. Even though you might be dealing with, let’s say, a 500 million dollar local credit union, we work cooperatively together and have funding capabilities well beyond just the individual financial institutions that you may see on the street corner.
Theo Hicks: What types of loan programs do you have for people who already own a property? Let’s say I’ve already got a bridge loan or some sort of loan on my property that I’m looking to refinance out, or pull out some equity. Do you guys work with people who already own a property, or is it mostly just people who are looking to buy a property?
Mark Ritter: No, absolutely. There’s nothing that makes us happier when you come in and say “I have this property, it’s stabilized. Here are the financials. This is the tenant.” We know what it is. We can get those in/out the door, rapid speed, and get you an answer. And like I said, if you wanna come in and meet the people and talk about what’s going on…
Most of what we see today is your basic sort of five-year fixed period, amortizations. In the 25-year range — we’ll go a little bit higher, depending on the nature of the property. So we really look to sit down and say “What works for you, what works for us.” We tend not to lend in a box, maybe — as you’ve mentioned, the agency debt… We have a lot more flexibility. We’re lending out our money, we’re not borrowing money. We’re lending off of our balance sheet, so that gives us the flexibility to sit down with somebody and say “What makes sense for you?”
Theo Hicks: Is there any particular type of property or particular type of person you won’t lend money to?
Mark Ritter: Anybody we can show that’s gonna pay it back, we wanna have that conversation with. There are some particular credit unions — we just closed on a hotel loan; there are some credit unions that don’t finance hotels. That’s okay, we have many that do. There’s some places that won’t do any other restaurants or hospitalities; we have some people who like that. We have some that love strip centers, some that won’t.
So what we are is we’re a credit union-owned company, so the credit unions are working with us to put together the deal and then match it with a credit union in the region or in the country that it makes sense to do.
Theo Hicks: If I’ve found someone who’s either looking to buy a property, or already has a property, and I’m looking to work with a credit union, what’s the best way to find the credit union in my area? Or can I use a national credit union? The question is “How do I find a credit union to work with?”
Mark Ritter: In different markets there’s a lot of credit unions. There’s three times as many credit unions in this country as banks. So there’s a lot on the street, and if you’re walking door-to-door just cold, it’s really difficult to know who does what. MBFS is what’s called a CUSO, which stands for Credit Union Service Organization. Think of us as an aggregator for the industry… And there’s about 10-12 of us in the country that just focus on commercial real estate. So when you visit us, it’s like visiting with 60 credit unions. And there’s other organizations like us that are regionally throughout the country, that can really save you a lot of time and hassle in searching and trying to match up with a credit union.
Here at MBFS we have relationships with these other organizations like us. So maybe if you come to me from Montana, I might not have somebody there, but I have a sister organization out West where we can get you hooked up with the financing you need for your commercial real estate, or your multifamily, whatever you need.
Theo Hicks: Alright, Mark, what is your best real estate investing advice ever?
Mark Ritter: Being the lender that I am, I’m gonna go where I’ve seen the most failure and flubs. Really, my advice to everybody is do what you know. Understand the project that you’re getting into. If you just hear a sales pitch and it doesn’t make sense to you, then don’t do it. Focus on what you understand from your professional background, from your experience… If you don’t know a market, don’t just take it on a whim, or google up the area and say “Oh, that seems nice.” If you’re not comfortable, spend some time and spend the time on the due diligence, and don’t just hop into something that you don’t understand based off of somebody else’s opinion.
Theo Hicks: Solid advice. Alright, are you ready for the best ever lightning round?
Mark Ritter: Sure.
Theo Hicks: Alright. First, a quick word from our sponsor.
Theo Hicks: Okay, what is the best ever book you’ve recently read?
Mark Ritter: Freakonomics.
Theo Hicks: If your business were to collapse today, what would you do next?
Mark Ritter: Professional wrestling promoter.
Theo Hicks: For the WWE?
Mark Ritter: Certainly. Or somebody else. I’d go out on my own.
Theo Hicks: Best ever WWE wrestler?
Mark Ritter: Oh, Macho Man Randy Savage.
Theo Hicks: There you go. I used to play those wrestling games back in the day when I was younger, and he was definitely one of the characters in there, one of the fun ones. Alright, what is the best ever deal you’ve done? This could be a best ever loan you’ve done, or you can take that any direction you’d like,
Mark Ritter: As crazy as it sounds, a church ground-up construction. Best thing, proudest I was ever of.
Theo Hicks: And what about on the other end of the spectrum? What’s the worst deal you’ve done?
Mark Ritter: Oh, that’s my easiest question ever. I did a family entertainment complex that you could do ten episodes about, where I could tell stories about what could go wrong.
Theo Hicks: Could you give us one of those stories?
Mark Ritter: Well, the day it opened, the majority partner decided to run up three million dollars in bills and change orders that he didn’t tell anybody about, including me.
Theo Hicks: Wow. What is the best ever way you like to give back?
Mark Ritter: Youth sports coaching, even if I don’t have a kid there. I loved to do it before, and I still like it.
Theo Hicks: And then lastly, what’s the best ever place to reach you?
Mark Ritter: MBFS.org. I love my LinkedIn account. I stay away from Facebook. Mark Ritter on LinkedIn, from MBFS. I’m really active on our LinkedIn profile.
Theo Hicks: Alright, Mark, I really appreciate you stopping by, and I know the Best Ever listeners did as well, and giving us a crash course in credit union lending. Just to summarize what we discussed in this episode – we started off by talking about what a credit union is; you mentioned that over 100 million people belong to credit unions, and you called them cooperative financial institutions that are run by the members, so the people who have their bank accounts there, and their elected board of directors.
For your particular aggregate company, you lend on single-family homes, up to four families, up to 30 million dollar class A office space… And something interesting that I did not know, which is that credit unions do not have pre-payment penalties. That’s definitely a huge advantage to investors, over standard agency loans.
You mentioned that you do offer multifamily renovation loans that are based on the as-is value renovation cost and the stabilized value. The qualification process and the underwriting process is very similar to other banks, but the biggest differentiator is the relationship side of it. So you want to know exactly who you’re dealing with, you wanna know who they are, their story, you wanna meet them face-to-face, whether it be them coming into your office, having coffee with them…
Then of course you go through the typical financials of the property, the borrower’s background, things like that. You mentioned that credit unions have a lot of flexibility when it comes to lending. On the first loan it’s gonna be pretty standard, but after that, once you’ve done more loans and you get to know them better, the loan programs have a lot more flexibility. You don’t lend into a box, because of the fact that you’re lending out your own money.
You mentioned that the best situation for you is someone that comes in and already owns a stabilized property and they’re looking to just refinance and do a new loan. You mentioned that maybe not every single credit union you go to will offer the exact loan program that you need, but there is a credit union out there that will.
Then we talked about how to find credit unions, and you said the best way is to find one of the CUSOs, which is an aggregator. It reminds me of a mortgage broker who will go out and find you the best credit union for your particular investment strategy.
Then lastly, you provided your best ever advice, which was to do what you know, focus on doing things that you understand based on your background and experience, and if it doesn’t make sense or you don’t understand it, don’t just do a quick Google search and do it. If you are gonna do it, make sure you do your detailed due diligence, so that you do actually understand what you are getting into.
So again, I really appreciate you stopping by, Mark, and providing us with your lending expertise. Best Ever listeners, thanks for listening. Have a best ever day, and we will talk to you tomorrow.