When purchasing small multifamily property, I learned right away that usually you can't even look at the property until you make an offer. This seemed odd at the time, but later I'd realize why that practice is the industry standard.  While I was concerned about making an offer that I couldn't possibly back out of, my agent assured me there were conditions in the contract upon which we could cancel it risk free if we didn't like what we saw.  We found one stand out on the list of several apartment buildings, confirmed the numbers in the MLS report from the selling broker, made an offer, and off we went to meet with the landlord.  The property looked well maintained from the outside, was in a decent neighborhood, fairly residential, and mostly working class, blue-collar.  By all accounts this was a great find.

Meeting the Seller

We met the landlord at the property early in the morning.  The landlord was in an apartment which had been vacated the week before.  The landlord was painting the walls in one room as workers were laying new carpet in another.  After a minute or two of chatting he went to his truck and pulled out his tenant list.  We walked around the property and asked questions.  

My first question was "what are the rents?" He gave me a tenant list, and for the most part confirmed what was listed on the MLS.  Since one of the units was now vacant, it had dropped slightly.  I noticed the tenant list did not have rental dates listed so there was no way to know when leases were up, and who would be moving out in the near future.  He also admitted he hadn't kept track and tenants came and went as they pleased. He had only month to month leases.

I had his expense sheet which I had already looked over before we met.  The numbers for taxes were confirmed via the internet, the utilities were paid by tenants, and the landscaping and miscellaneous fees looked ok.  

That led to my second question which was, "what are the maintenance expenses?"  He responded, with a straight face, by saying he doesn't have any maintenance expenses.  Maybe he thought we were dumb, I mean, when we first met he was painting a unit and carpet was being installed.  I guess the paint and carpet fairy just dropped off that material and installed it for free. That was the first red flag, and without getting into an argument right there and then I tucked it away for later use.

Confirming the Rents

I asked if we could see a few of the units and the landlord agreed.  We knocked on doors and everyone let us in.  They were sort of surprised,but seemed to have a decent relationship with the landlord.  While there, we looked at a few of the units, most of which had some deferred maintenance that would need to be completed before I felt good renting to any new tenants.  There were a few units that needed immediate work as well. Now I understood what the landlord meant by no maintenance costs.  It's not that there weren't any, its just that he didn't perform any.

In a few of the home my agent took the seller aside and asked a few questions while I was able to ask the tenant to confirm the rent numbers on the landlord's sheet. That was a little trick I learned from my Uncle who is a master real estate investor and negotiator.  Most of the tenants confirmed the numbers, there were a few who weren't sure. Seriously.  They didn't know, or weren't willing to say, what they paid for rent each month.

At the end of our tour we thanked the landlord and told him we'd be in touch soon.  I had alot of information to work with and I wanted to go back to the office with the agent to run the new numbers.  REnts had changed a bit and we needed to make a few estimates on repairs and maintenance moving forward.  That would surely change our offer.

Doing More Research

We ran the numbers and reduced the selling price. We called the landlord's agent to tender the new offer, and since we had started to trust the numbers a little less, we asked for full disclosure from the landlord.  We gave him 10 days to comply, during which time we'd start looking at title and other 3rd party reports. We requested the following documents from the landlord:

• Personal tax returns (sections relating to the investment property) for the past three years
• Historical rent roll and expenses statement for the past three years
• Property Tax bills (showing they've been paid)
• Warranties for the laundry equipment and other electronics and appliances in the homes.

Out of all those documents, I was most interested in the tax returns because I could see what the owner was really claiming on his taxes in regard to this property.

The offer was promptly accepted, but we didn't get any of our documentation until day 10, and it was immediately apparent why they waited so long.  

Confirming the Numbers through Proper Documentation

Turns out property taxes had not yet been paid, and they were late.  That was a no-no because the county was notorious for quickly lining on property for back taxes.  he didn't have warranties for any of the appliances because he bought most of them off craigslist, and he didn't have a historical expense statement.  His rent roll showed that he had massive turnover, replacing a tenant or two almost every other month. HIs real vacancy was probably close to 50% over the year and almost every tenant was late with rent.

Further, the rent numbers were not really correct.  The numbers listed on the rent roll included the late fees that the tenants paid because they were always late. Their actual rents were about $50 less per month per unit.

Finally, the tax returns, as expected, sealed the deal...or should I say made us run away from the deal.  The landlord had in fact claimed maintenance expenses on the property of more than $10,000 in each of the previous three years. He also had significant expenses for legal fees, and soon thereafter we found out that a previous tenant had been sewing the landlord for something that happened between them. 

Taking Stock

My agent and I took stock of this deal. If we moved forward, we could be exposed to a property tax lien.  We could consider dropping the sales price by a figure equal to the back tax amount, but then we'd have to make up the back taxes in cash.  Not a great option.

Perhaps even more telling was the landlord's dishonesty, and we thought that might translate to other areas that we had not yet discovered.  We couldn't, in good conscience move forward with this deal.  There were too many skeletons in the closet, and even the possibility of additional skeletons popping up very soon.

Summary

I learned quickly that dealing with sellers (and the real numbers of the property) can be very different than analyzing a deal on a spreadsheet in the comfort of your home.  No matter how excited (or ready) you might be to become a landlord, do not let your excitement get in the way of confirming all the numbers of a deal. Make sure to get every piece of documentation you possibly can from the landlord before making any rash decisions. Don't let sellers, or their representatives, bully you into accepting something you don't like or can't afford because it's your reputation (and finances) on the line once the deal is complete.

Further, make sure you line up your financing ahead of time, even before making offers.  Just a few weeks later we would finally get into contract and move forward on a property, at which time my loan approval would help out. However, even the documents I requested from the seller that helped me confirm and analyze the deal weren't enough for the lender.  They wanted to see additional documentation, and I admit, I was unprepared, which delayed the closing.  Banks are getting tougher than ever with documentation requirements these days, and for good reason.

I recommend expanding your financing options past the commercial banks. Look into portfolio and private money lenders early.  A great summary of who these banks are and what they do can be found in this article, and also in the credit library at Direct Lending Solutions, which is a great website for real estate mortgage resources.

If you want a copy of the template I use to analyze multifamily deals, look up my profile, send me an email, and I'll send it over to you.

The United States Treasury faces a deadline at the end of the month, set by the Dodd-Frank financial overhaul legislation, at which time it needs to have issued a report on Fannie and Freddie and make recommendations on the future of the two organizations.

In 2008, at the height of the recession and financial collapse, the government took control of the two beleagured giants, which own or guarantee between 50-60% of the total mortgage market in America, a number well into the trillions of dollars.

While the White House has not yet commented on a course of action it announced on NPR today that it will not be making the January 31 report deadline.

Reformers have been calling for a full privatization of the mortgage companies, which if completed, will have much broader implications for the housing market and the economy as a whole. With a Republican controlled House calling for a cutback in expenditures, and the size of government in general, it's hard to imagine a recommendation where Fannie and Freddie exist as a private/public hybrid.  The cost burden to the taxpayer would likely be more than he would like to carry.

Whether private or public, the toxic assets currently on the books of the two mortgage companies will have to be revalued.  For the housing market to recover and prices stabilize the baseline valuation needs to be reset.  Currently, there is no consensus on the best way to accomplish that valuation.

2009 had been the worst year on record for banks with 140 closings, which was almost three times more than the total number of all bank closings for the previous nine years combined.  It was then overtaken by 2010, when closings rose by 12% to a total of 157 banks closed, bringing the two year total (2009 and 2010) to 297 closings, or 84% of all banks closed in the last decade.

2011 has seen the closing of seven (7) banks thus far, a rate of almost one every three days.  Some industry insiders believed the rate of bank closings would drop in 2011, but it is on par with both 2009 and 2010, the two worst years in history for bank closings.  2011 closings include:

1. United Western Bank
2. The Bank of Asheville
3. Community South Fork Bank and Trust
4. Enterprise Banking Company
5. Legacy Bank
6. Ogelthorpe Bank
   
7. First Commercial Bank of Florida

Many of these banks closed in response to the mortgage market crisis, and as more banks continue to report losses due to large portfolios of loan defaults, the banks closings will continue to mount.

In July 2011, the newly formed Consumer Financial Protection Bureau will begin the task of bringing all consumer credit companies under its watchful eye.  While this doesn't necessarily include all banks under the watch of the FDIC, it does include any bank or company that sells any financial product and service including credit cards, mortgages, payday loans, private student loans, and debt collection.  The agency will also monitor the credit bureaus and any auto loan not originated by auto dealers.

The commercial industry (LEED) has already figured out why green is more valuable; better quality of life and lower costs, both which equal higher profits.  In 2009 CA Governor commissioned a study that proved the first part of the equation, better quality of life. That study can be found here. Better quality air, happier and healthier workers, less time lost to sickness, more productivity, higher profits. The second part is just dollars and cents.  If there are two properties comparable in shape, size, utility, location, and income, but one of them has expenses only half that of the other, it's pretty obvious which building is more valuable to potential buyer/owners.  As such, commercial building owners across the country have led the charge in retrofitting existing buildings and constructing new buildings with energy efficient fixtures.  Any commercial contractor will tell you the cost to do so is not significantly higher than putting in non-green fixtures, and the market economists will tell you its simply unconscionable not to build with an eye toward commercial sustainability.

Each year the Urban Land Institute (ULI) puts out the Emerging Trends in Real Estate, an amazing forecast for the year to come, across all real estate segments.  The panel, arranged in cities across the country, features real estate insiders, lenders, builders, and leading economists who comment on the state of the industry and its future.  The sentiment they all share is that green is here to stay, and while it might not currently be as ubiquitous as one would like, one day we will all wake up and every home will be built green.

I believe that trend has already started. About a year ago I worked with a very smart Seattle Eco Broker, Ben Kaufman, from Greenworks Realty, who released a report with data from the MLS which shows that Green Homes were selling faster, and for more money, than non-green homes-and that was true even during the recession. You can read the article here and download the data as well. It was picked up in just about every news outlet there is across the country, as was the first such report of its kind from a broker who was involved with getting the "Green" home check box on several MLS sites. The data is now a year old, but i doubt much has changed, in terms of the ratios quoted in the reports, one of which is shown below.

I also believe, that once banks and lenders realize that a green home is a healtheir home, and one that is worth more money and more marketable, they will begin to offer new programs and new loans for green home purchase and refinances, and the green building industry will see a second boon, like the one it saw just a few years ago.  There are a few banks who claim to have green loans now, but they're mostly shams, offering just a quarter point rate deduction tied to better neighborhoods or certain zip codes.

In a market like the one we are in now, how valuable is a home that sells quicker and for more money than the one next to it? How many Realtors would like that competitive advantage?

Technology and time management are two of the more important factors in the arsenal of most successful real estate professionals today. The impact of these two items cannot be overstated, and you’ll find the more proficient you are at each, the more successful your business will be.

Real estate technology, like technology in general, is constantly improving. In fact, we’ve come a long way in a short period of time.  Just a few years ago information was entered into notebooks and reams of paper were kept in file drawers in our offices.  We kept area maps in our glove compartments and thanked the heavens when Thomas Guide came out with a book that included our neighborhood. Today, we get help from contact management systems, mobile maps and navigation, online document storage, and search engine optimization-which allows our business to gather customers even while we sleep.

Some would argue all the new technology actually distracts from the daily tasks of being an agent, broker, or lender, which is why managing our time is so important. However, if the real estate professional can analyze and simplify his critical business processes he can put together a list of necessary technology and make his business more efficient and more profitable.

Technology and time management are systems built on a process that can be tailored for each unique business, no matter how big or small you are, whether you do one deal a month or one hundred. This article shows you how to run your small business like the Fortune 500 runs their big business.  Believe it or not, the processes are exactly the same, and if you can master these skills your commission checks will come more frequently and your back office operations will be much less cumbersome.

Analyzing Your Critical Business Processes
In the business world there are systems called Six Sigma and Lean, which are ways of analyzing your every day processes and refining them to include only the things which drive value to your customer.  Basically, you’re trimming the fat and performing only the functions necessary to get the job done, and keep the customer coming back for more. Companies like Toyota, GE, and Motorola perfected these systems and rose to the top of their fields.  You can do the same thing with your real estate business and rise to the top of your market in no time.

Process Mapping
You start the analysis by mapping your daily processes.  What is a process, you ask? Basically, anything you do, and repeat, on a regular basis. Talking on the phone and reading a script is a process, taking customer information is a process, and sending emails or newsletters is yet another process.  You can make a process map for anything, really.

As a lender, for reviewing current deals we have a process map that lets us know the status of each deal and exactly what remaining documents we need to collect.  This process takes us through every loan submission from start to end; from the first phone call to signatures at the closing table. Our Process Map looks like this document.

Our Process Map Explained
As items come in we check them off and once all are completed we move from stage 1 to stage 2. Any deal that doesn’t meet all the conditions of stage 1 never moves to stage 2. For example, we make it known to our borrowers that if we don’t have all the documents listed above we will not provide a quote, we will not order an appraisal, and we will not give term sheets.  By following our process we eliminate wasted time and conversations with borrowers who aren’t as serious about their business as we are about ours.

Stage 2 takes the longest and requires third party reports, which means we wait on other people to do some work for us.  While we can’t make them do their job quicker, we can make sure they have all the documents and information they need to get their job done as quick as possible.

Stage 3 work comes back to us.  With the third party reports we confirm our data and check to see if the deal meets our loan parameters.  If not, we turn down the loan, draft a turn down letter or email, and contact the borrower with that information. If it fits our parameters we’ll draft a loan offer in the next step.

Our loan offer, Stage 4, is a process within a process. In it, we list interest rate, loan amount, loan period, points, fees, and any additional documents we need to review before closing.  We plug the information garnered in steps 1-3 into our loan offer and this letter is automatically transmitted to our borrowers. At that point we have to wait on a response from our customers, which is why we put a short timeline on every offer we send out.  We don’t want to wait a week for our borrowers to respond. If we’ve done our job and put together a loan that the borrower has requested we want a quick answer.  Typically our loan offers expire after 24 hours.  That allows us to move quickly to stage 5 and close deals or cross the project off our list and move on to other important business.

At Stage 5 our project should be on auto pilot. By setting a close date we are putting the third party companies on notice they must submit their reports by the deadline.  Rarely do we run into problems when we make the third parties responsible for this timeline.  In the cases where a third party dropped the ball we dropped them from our preferred vendor list and let them know they will no longer get business from our firm.

We start an online file with this process map for each and every project that comes through our door. That way, whether I access the file or my partners need to view it, we can find it online and share the data and update real time.

Create Your Own Process Map
To create your process map, take a look at your day and figure out what you need to organize. A typical real estate agent or broker’s typical day might look like the following:

7:00 am    Wake up, have coffee, read the paper, get the kids off to school
8:00 am    Read emails, catch up on what was missed the night before
9:00 am    Review current deals in the pipeline, determine which deals need action today
10:00 am    Phone calls on current deals (title, lenders, clients, appraiser, inspector, etc.)
12:00 pm    Break for Lunch
1:00 pm    Follow up with clients for signatures, documents, deposits, etc.
3:00 pm    Farm my neighborhood, continued marketing, send out newsletters
5:00 pm    Generate new business, speak with referrals

Here are the process maps you’ll likely need:
    •    Project/Deal Process Map
    •    Area Map

Believe it or not, that’s it.  you need just two process maps for your entire business, and if you are a member of the MLS, your local association might have some of this information already done for you. Just plug it into your own sheets.

You want to gather the necessary information which includes property address, type of property, size and type of rooms, included fixtures and furniture, estimated value, and other items you might need to determine whether you will take the listing or not.

To map that process take each question you ask and put that on a sheet of paper in the order you ask the question. Try to fit that entire process on one page, if possible. If it has to cross two pages, that’s fine, but if your process map takes three or four pages you need to cut out the fat, and distill down to just the necessary items.

As an agent, you want to create your own process map and follow it every time you take a phone call or in-person meeting. This sheet organizes all the critical data in one place.  Even as you gain more experience and can memorize these questions keep using the sheet.  Without it, you will likely just scribble information on note sheets and post-its and it will never be where you need it in an emergency.

Integrating Technology Into Your Real Estate Business
Once you have your process map down, you can reflect on the type of information you need to record for each project.  Keeping this information on paper or in notebooks and files is fine, but you should strive to record all this information online.  That way, if you spill coffee on the paper you always have a computer backup.  Online backups also give you the ability to check your files from anywhere you have access to the internet. With today’s smart phones, that’s pretty much anywhere you can get a signal. That’s very powerful, and it allows you to leave your heavy files at home in a safe place.

Eventually, you can skip the paper entry and move right to the computer entry. Again, resist the temptation to skip using the process map just because you memorized the questions.  Take the extra moment and log into your customer management database and enter the information there.  The benefit here is that even if a particular deal falls apart, you will have all that potential customer’s information in your system for future reference.  The deal that doesn’t work today may work tomorrow and you can reach out to them on a regular basis with ease from your computer. This is easier than having to go through old files and papers just to find an email address or information about a property address or comparable report.

Customer Relationship Managers
These systems, also known as CRMs, are probably the most valuable tool available today for real estate professionals.  They keep organized contact information like phone numbers, addresses, and emails.  They also bring together transaction lists, notebooks, calendars, task and project lists, document storage space, and much much more.  We use salesforce.com exclusively as my CRM. It allows me to create custom fields and to organize them in the order I take information from borrowers, just like on my process map.  Then I can track multiple deals from individual clients, and know instantly where each deal is in my 5 stage process map, and more importantly, what things I need to do to move that deal to the next stage. We have even tweaked our system to allow borrowers to view that process map, so they know exactly which documents they need to submit to us, and when they need to submit it.  They can even submit documents online or through email, after which time their process map is automatically updated in real time.  Intermediate steps are also facilitated with emails from our system. Before stage 1 we send an email which explains what they need to do to complete that step. As they finish step one by submitting documents our system sends another email which helps them finish step 2, and so on and so forth.  We can almost step away from the project and let the client, and our process, do the work for us, until such time we need to analyze numbers and reach a decision before moving to the next step.  Putting this system in place allows us to do what’s important for our business, generating new leads, educating borrowers, and closing more deals.

Salesforce.com is not the only CRM system out there.  There is also Zoho.com, Goldmine, and ACT!, among others.  Each has a free platform which allows tracking minimal amounts of data, and each has professional platforms which add functionality.  Personally, I have used each of these systems and have found Salesforce.com to be the most scalable, and it satisfied our needs when we were a two person shop and it satisfies our needs now. Salesforce starts at $5 per month.

Online Document Storage Systems
Online storage, also known as “the cloud,” is becoming an every popular way to manage documentation.  In this regard, there are several systems including Google, Microsoft Live Office, Filesanwhere.com, Box.net, and others.  Again, we’ve samples just about every one of these options and have come to use Google and their corporate apps exclusively. This is significantly cheaper than the competitors and we can rest easy knowing there won’t be any down time with Google.  We use google as our email server, even with our own domain name. You can check out that system, called google apps here: http://www.google.com/apps/intl/en/business/index.html.  The service is free, just like gmail, and you get over 7gb of corporate email space, almost unlimited number of email addresses, and an admin panel that lets you administrate the whole company.  Additional storage can be be purchased for just a small amount of money per year.  For instance, it costs just $5 for 20 gb of online storage per year.  This service also gives us a calender which we can share with our loan officers and brokers across the country.  In fact, we can run our entire business from within google servers online for just $5 per year.

Our documents are created with google docs, for free, and exported to PDF or word and excel.  That way we don’t have to buy Microsoft software for 20 loan officers every year when the update comes out.  Cloud computing saves us thousands of dollars on software every year and we get the same functionality online, plus easier access.  We can also share projects online with google docs.  We can password protect files or control access restricted to certain email addresses. We can even allow customers to edit documents and we can see the changes in real time on our end. The system is very versatile.

Newsletter and Email Management
We use Icontact.com email management which integrates with google and salesforce.com.  This allows us to segment our customer contacts into groups and send auto responders at regular intervals.  That system is priced based on the number of contacts you maintain, but to start you can run a system for less than $20 per month. It offers theme based templates, many for real estate purposes, and an easy to use WYSIWYG editor.  Perhaps the most powerful feature of Icontact is its tracking mechanisms.  After we send out an email we can track how many people open it, which links are being clicked on, how many unique and repeat visitors we have, and how long those customers are staying on our site.  Depending on which link our customers hit we can segment our lists and send them separate emails more tailored to their specific interests.  For instance, an investor might receive our general information email, open it, and click on the link for our 100% purchase and rehab program.  Once they do so, we will follow up to that email address with another message specifically about that program in which they were interested, along with ways they can get even more information not listed on our site.

In addition to Icontact, there are systems like mailchimp, vertical response, constant contact, AWeber, and Emma email marketing.  They all offer similar services at similar price points.  Pick one you like and stick with it.  It takes an average of six touches per person before that person responds to your marketing material.

Of course, we use Activerain.com to get the word out about our company and our programs, and to interact with other real estate professionals.  Activerain’s rainmaker system is an inexpensive and effective way to reach the professionals that matter, and to share ideas and learn from its extensive real estate community.

In total, our company generates six figures of revenue each year and spends less than $100 per month on its systems.  Our phone bill is another thing altogether though, and unfortunately, not as inexpensive!

Mobility
We can access any and every record of data, with customizable reporting features, from our computers, our mobile phones and Ipads, and from anywhere on the road where we can find an internet connection.  Now, we even use Google phones with tethering so our phones become mobile hot spots and we can access the cloud without trying to log into a paid hot spot, like those at coffee shops or office buildings.

We also carry small wireless mobile printers which fit in glove compartments and brief cases.  When we actually need to print a document ourselves, which isn’t often, we send it to the wireless printer and have it ready for a client’s signature right there in the field.

The Final Word

By reviewing our processes, and really thinking about the things we do repetitively we can distill our work down to the essential functions needed to get our job done.  Then we create a virtual system to contain that information and make it accessible anytime and anywhere we need it.  

We don’t have to worry about wires, computer crashes, or losing data.  We can concentrate on finding business, keeping customers happy, closing deals, and educating other real estate professionals.

For more information on our lending processes visit our website at www.creativereo.com and for other helpful articles on personal and business credit visit www.directlendingsolutions.com.

The BEA released residential construction data today.

Building permits in December were up 16.7 percent from November but down 6.8 percent compared to December 2009.

Housing starts in December 2010 were down 4.3 percent from November and 8.2 percent below December 2009.

Some reports list the inclement weather, particularly in the Northeast and Northwest, as reason for permits being filed but houses not being built.

Still, the starts number was at a level of 529,000, which is more than 100,000 units less than the filed permits. I believe the problem runs deeper than just inclement weather, attributing some of the attrition to tougher financing guidelines, and lack of overall liquidity on the part of the builders, despite their actual filings for permits. 

Further, I would argue a trend like this is exactly what we need to help clear the current glut of supply which has been keeping home values low, foreclosures and short sales high, and neighborhoods depressed.

We recently put together a one year loan of $108,000 which covered a large portion of the purchase price and all of the client’s construction costs on this single family home. 

We also included a one year interest reserve, which will be credited back to the borrower if the loan is paid off on time.

When you need to borrow money where do you turn?  If you are like most people your first option is probably a bank, but with so many choices, it can be hard to know which bank is the right one for you.

The first banks were purely depository institutions; accepting money, keeping it safe, and returning a modest rate of interest. Today, there are more than a dozen types of banks among thousands of branches, each performing an essential function for the financial community ranging from community savings to business banking to construction lending and everything in between.  The largest and most frequented banks offer a multitude of services for its borrowers; and the key to choosing the right bank is knowing which one offers the services that most closely match your needs. The following is a list of the major bank types, an explanation of its function, the services it offers, and how you can use each one to your advantage.

Commercial Banks
The most ubiquitous of the banks is the commercial bank.  These are retail banks with branches on every corner of major metropolitan areas. They function by taking deposits from other corporations and individuals in the region and then investing that money through other banks, financial markets and governments.  Commercial banks control most of the real estate lending market, making over 60% of mortgage loans on residential property, and have a similar market share on the commercial real estate industry too.  Commercial banks are also the biggest FHA/HUD lenders.  Commercial banks are one-stop-shops for just about every financial product you need including savings accounts, certificates of deposit, investment services, loans, credit cards, and business products.  They offer competitive rates, low fees, and deal in volume; offering the best terms to the customers who invest the most. Because they have the volume, they can be risk averse, which means to do business with a commercial bank you’ll need good credit and have no hiccups in your financial past.  Often, commercial banks are the strictest of real estate lenders.  They’re good for a small loan of $20,000 or a large loan of $20,000,0000, but they also require high credit scores, good payment history, reams of income and property documentation, and larger down payments-especially for commercial real estate.

Community Banks
Community banks offer many of the same services offered by commercial banks, but on a smaller scale.  A community bank doesn’t have as many branches as a larger commercial bank, and usually operates in just one or two communities.  These are also known as local banks.  A community bank, like its name would suggest, focuses its business activity in individual communities.  Its bankers and loan officers interact with the community members and small business owners and often tailor their products to the local needs.  For instance, some community banks in rural areas provide only farm loans, whereas a community bank in a larger city may provide only small business loans.  A community bank has a smaller lending cap then a commercial bank, and while its underwriting guidelines may be just as tough, a community bank will usually take on more risk in real estate lending because they have a better feel and trust for local real estate values. For this reason, a community bank may be more likely than a larger commercial bank to approve a risky apartment building loan or make a loan on a small property from a foreclosure auction.

Internet Banks
Internet banks exist solely online and offer mostly basic banking services like deposits to checking and savings accounts, personal and car loans, and credit cards and lines of credit.  Because these banks do not have retail, brick and mortar locations they can keep their costs low and pass that savings on to the customer in the form of higher interest rates on savings accounts and lower fees on checking accounts. Wondering how you would deposit a check to an internet bank?  Most internet banks allow you to scan your check or take a photo of it using your PDA and to upload it to their server.  The check/picture is scanned and credited to your account, usually in less than 24 hours.  As technology continues to improve and online security gets more robust, Internet banks will likely continue to grow and add more services.

Mutual Savings Banks
These are institutions for savings and deposits that began lending money on a more localized level.  These banks are owned by its depositors and not general stockholders like the larger commercial banks.  The idea here is that the bank can be more responsive to the needs of its customer if its customer is an owner in the bank.  All profits from the bank go back to the depositors, and by law, mutual savings banks (aka thrifts) must have at least 65 percent of their lending in mortgages and other consumer loans.  Mutual savings banks like to play a role in helping the community develop and are therefore great places for larger real estate loans and business loans, like those for developing manufacturing facilities and larger apartment communities, grocery stores, and regional shopping centers.

Credit Unions
A credit union performs like a mutual savings bank in that it is owned and controlled by its members.  Credit unions are also known for being restrictive with membership, often requiring you to be a member of a certain industry or civic association to gain access to accounts and services. For instance, Navy Federal Credit Union exists to service current and former service men and women. Teachers Federal Credit Union started by offering accounts only to teachers and educators. Some credit unions exist only for employees of certain companies.  Deregulation in the banking industry has allowed credit unions to grow into much larger institutions, some of which now rival even the largest commercial banks.

Hard Money Banks and Private Banks
Typically these banks perform only one function; lending.  They are rarely depository institutions, and less often do they invest in the market.  Mostly, they pool funds from investors and corporations to lend on real estate and business property though asset based loans.  An asset based loan is one that is based purely on the value of the asset being pledged as collateral for the loan. Hard money and private banks care less about credit scores and income ratios and more about the value of the property for which you are requesting a loan.  They like the property itself to be the sole determining factor in whether they make a loan.  As such, hard money loans and private loans tend to take much less time to complete than conventional loans.  The trade-off is that they are made with higher than market interest rates and origination fees.  Hard money lenders are sometimes the only lenders that will provide loans on undeveloped or raw land and properties that need rehabilitation.  They may also be your only choice if you have sub-par credit or low income relative to the requested loan amount.

Ethical Banks
These are typically the smaller, more local banks, and usually offer only checking, savings, and investment accounts.  Ethical banks focus their business on socially responsible investing, which means they avoid placing your money with companies involved in pornography, the making of either alcohol, drugs, or tobacco, and weaponry.

Knowing which service you need fulfilled upfront, and in the case of real estate lending - how much you need and one what kind of property, will help you choose the bank that best fits your needs.  Other considerations like credit score, property documentation, income ratios, and past loan history may determine which bank you need to visit as well.For more information on banking types and the different loans they offer visit the Direct Lending Solutions website and take a moment to review one of the many helpful articles in the personal and business credit library.

Starting a new business can be a challenging and rewarding prospect.  Like many other endeavors in life, it's easier if you have a helping hand guiding your every move, preventing you from making mistakes that might not always be visible to a novice eye.  

For that reason, it's no surprise that you hear so many successful people got where they are today with the help and advice of a mentor.  The mentor relationship is not uncommon, but it is definitely under-utilized.  You've probably heard of mentor relationships in education relationship, like between a professor and a student.  Or maybe in a working relationship like that of a master carpenter and his apprentice.  

Would you be surprised to know that many successful business people have claimed their success is due in part to the guidance of their business mentors?  Bill Gates, the wealthiest man in the world, has said publicly that his mentor is Warren Buffett.  Warren Buffett has often cited famous investor/professor/author Benjamin Graham as his mentor.

So...who's your mentor?

What's that, you don't have one and don't know where to find one? 

You need to get out there and pound the pavement.  Successful business people aren't going to just show up at your door in your time of need.  Find a trade association event in your business and start networking.  You can't find a mentor if you don't get out there and start making contact with the respected people in your field. 

It doesn't matter if your field is medicine or scrap booking, there is probably someone out there who has been doing it longer than you have, or more successfully than you have.  If you're in that small percentage where that is not the case, you can still find someone to mentor you on one segment of your business where you could use help.  Maybe you're great on marketing knowledge but horrible with sales calls.  Go and find a big dog salesperson to give you some pointers.  There's a mentor out there for everyone.

I've met several successful business owners who have several mentors.  In essence, they've created their own personal team of experts they can tap into at any time they need.  Again, you need to get out there and make contact with these people.  It may take awhile to round out your team, but when you do, you'll be a step above the rest.

For those just starting out, you should think about adding the following people to your team of respecting experts, or mentors:

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Fall cleaning extends the life of your business and increases efficiency and profitability.

Learn how to perform fall cleaning for your business. Read the full article here.

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