“Greenspan speak” That’s what they call it when you were asked a question and you found a way to answer it without answering it. Politicians are fantastic at this. It is something I never got very good at, but I remember learning this skill in toastmasters. The exercise was to answer a simple question but talk for 2 minutes. Sound easy? The only way to succeed is to talk about something that may be related but is not answering the question at all. Like telling a story you want your audience to hear. It might start with “That question reminds of a time ….” And away you go. The audience might be amused, but the person who asked the question actually wants an answer!
Alan Greenspan was an absolute pro at telling you what you wanted to hear. Not much of what he said was true, but you sure believed it when he said it. Mr. Greenspan was the chair of the Federal Reserve when I was getting started in the mortgage industry. I remember learning the term Greenspan Speak from my mentor Joe. He told me that Alan had to be so incredibly careful because his words impacted the entire economy. Ok, maybe I can understand why Mr. Greenspan had to tell the media what he thought the people wanted to hear, but what about your banker that cannot shoot you straight?
Understanding The Banking Industry
I believe it is important to understand the banking industry, at least on the surface, as a real estate investor. Bankers that you will run into with your real estate investing will almost all be vice presidents. Some will have other fancy names. Vice president bankers are the ones that are out there trying to stir up business for the bank. They are the ones you get transferred to if you call or who will come out and say hi if you drop in at a branch. Their job is to sell the bank. They want your business so many of them will tell you want you want to hear, much like Greenspan, and not always what you should hear.
As real estate investors we rely on funding to operate. If your funding is your bank, just be careful you are getting the straight story and that they will actually come through for you. It is important to understand that just because their business card says vice president it does not mean they are second in line to a president. They more than likely are great salespeople and can possibly help you, but do not make the mistake in believing they make or help make credit decisions. They are not even in the room when credit decisions are made. I share this with you only to protect you from falling for the banker telling you what you want to hear.
Finding Backup Plans
Dig in a little to see who is making the decision and what they are looking for and always have a plan B. Hard money lenders are a fantastic plan B and most of them, Pine Financial Group included, will tell you the truth right out of the gate and you can actually talk to the person making the decision on the loan. They can also close fast, so build that relationship just in case your banker lets you down.
I am not saying don’t borrow from banks. Far from it. In fact, bankers can be one of your most important allies in this business. Let’s face it. You need money and they have it. I am simply saying be careful in believing what they tell you.
I have pretty good relationships with a handful of banks. Multiple relationships are important. I had a deal I needed to close last month. We had to bring in a decent amount of funds to get it done. I requested help from two different banks and thank God I did. We got the deal closed because one of my relationships came through. The other one told me twice it was not going to be an issue and even went so far to say they were excited to be doing this deal together. Two weeks later, the Vice President told me his credit committee shut down the deal. Two weeks of being told no issues and the rug was pulled. Understanding how the bank works saved me here. I knew this was a creative loan and it was possible it would be rejected, so I planned for that. Banks need to stay within their box, so I am not upset they did not do the deal. I am disappointed they said they can do it when they couldn’t, even though I know this is the game. Although this is not my first rodeo, it is an important reminder to have back up plans. Especially when there are significant profits on the line.
I am not sure where the relationship with this specific bank goes from here. It is going to be hard to trust the bank or this specific banker’s “banker speak” ever again.