Real Estate Rehab

A New Home Life—Bryan Toft stands before a house in Maple Grove, Minn., renovated under Community Bank Owatonna’s special Renovate and Restore financing program for real estate investors and redeveloper

A New Home Life—Bryan Toft stands before a house in Maple Grove, Minn., renovated under Community Bank Owatonna’s special Renovate and Restore financing program for real estate investors and redeveloper

By Judith Sears

Proving that local connections and know-how can compete with major banks, Community Bank Owatonna is celebrating the success of its breakthrough real estate lending program.

Initiated a few years ago, the Renovate and Restore program takes advantage of the $52 million-asset community bank’s strong, deep roots in its home marketplace of Owatonna, Minn.

“Our senior management team has lived in the community for more than 20 years and understands real estate lending,” says Bryan Toft, Community Bank Owatonna’s president. “We know who the players are and when to take a risk on someone or some property.”

Renovate and Restore targets real estate investors who are purchasing one to four family residential properties with plans to rehab the homes and either resell them or rent them out. For each project, the borrower puts down 20 percent based on the cost of the total project, which includes the purchase price and renovation costs. An as-complete appraisal verifies the value of the property after completion, Toft says. In the case of rental projects, Community Bank Owatonna will advance as much as 90 percent of the cost of the project, as long as the as-complete appraised value is high enough.

Borrowers appreciate Renovate and Restore because they have less cash tied up in a single project, Toft says. And because Community Bank Owatonna doesn’t sell these loans on the secondary market, the bank can finance several projects for those borrowers with more resources.

The bank’s customers have been enthusiastic about the program’s role in putting improved housing on the market. “Our depositors like to know that the dollars they have in our bank are going back to investing in the community,” Toft says.

Toft counsels that, as with any lending program, success with Renovate and Restore has required understanding and controlling particular risks. Before funding a project, the bank requires a scope of renovation, including a renovation estimate. Community Bank Owatonna actively monitors the rehab process, visiting the property or engaging a third party to visit.

Additionally, as with any loan program, the bank verifies that borrowers don’t attempt to purchase more properties than they have resources to handle. “There are always unexpected costs and delays,” Toft observes. “It never costs less. It almost always costs more!”

“We know who the players are and when to take a risk on someone or some property.”
—Bryan Toft, Community Bank Owatonna

Toft reports that regulators have viewed the program as investment property financing and, beyond having those controls in place, Community Bank Owatonna has not had to address any additional compliance issues.

Renovate and Restore has grown significantly in the last two years as word has spread through Owatonna and to the Twin Cities metropolitan area up Interstate 35 to the north.

“Just by focusing on our strengths and serving the local community, we’ve successfully carved out a unique lending niche,” Toft observes. “That’s very gratifying


Judith Sears is a writer in Colorado.

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