After fifteen years of investing in rental properties – many of those years we purchased as many as ten houses – I’ve always wondered why more mortgage brokers weren’t focused on helping real estate investors.
By Julie Broad
After fifteen years of investing in rental properties – many of those years we purchased as many as ten houses – I’ve always wondered why more mortgage brokers weren’t focused on helping real estate investors.
Investors can be more difficult to work with because fewer lenders will finance investment properties and there can be a lot more paperwork involved, but it’s also rare for an investor to find a great broker to work with.
It took us years to find a great mortgage broker. When we did find a great guy we followed him around from company to company as he changed jobs because he understood our business, stayed current with the lender programs that would help us qualify for financing, and was always willing to work until he exhausted all possibilities. He also did his best to streamline the process for us to reduce the hours we spent trying to get a deal done.
We never once asked him to buy down a rate.
We never shopped our financing around anywhere else unless it looked like he wasn’t going to be able to finance our deal. And, we always referred lots of other real estate investors to him because he knew the programs that worked for investors.
Numbers are important to a real estate investor, but many investors will pay private lenders as much as 7-10 per cent to finance their deals, so they aren’t as worried about saving half a point on a deal as they are about whether they can get financing at all. The mortgage money also doesn’t come out of an investor’s pocket directly so they are less sensitive than a home owner that sees every penny as their own. For an investor, the tenant is paying the mortgage, so as long as the property will cash flow and the terms of the mortgage work for their investment strategy, the interest rate will be less of a concern.
The lending landscape is a challenging place for investors. If you take the time to find programs that will work, stay up to date on them and do a little networking you could find yourself with a very loyal and active base of clients who will never ask for a rate buy down.
Admittedly, my husband and I are not average investors and have built a much larger portfolio than most investors, but many active real estate investors will still do at least one deal a year. As the market value increases real estate investors actively seek to leverage their equity to purchase more properties so refinancing is common. Plus, real estate investors will also usually be homeowners who will need financing on their own homes.
In a five year period, a decent real estate investor will probably come to you with a minimum of five deals plus they will certainly be referring other investors your way. How many deals will you do through a normal home owner in a five year period?
So what do you need to do to sell yourself and connect with the real estate investor market?
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First, educate yourself a bit on what a real estate investor is looking for. Take a look on Amazon for some great real estate investing books written by Canadians (More than Cashflow is one I wrote but there are others with high reviews as well). Get comfortable with the lingo and goals of an investor.
Second, research what programs are available to finance investment properties. Usually it’s the investors who already have a couple of properties that are going to be the most eager to find banks that will work with them so focus on that. What options are available if you use the overall portfolio value and cashflow? What banks will allow you to include all of the income for a legal suite, not just a portion of it? What options are there for someone who has the personal income to qualify for the purchase but doesn’t have all the down payment funds easily accessible? What banks will work with a second mortgage? Once you’re armed with this information and the knowledge of what investors will be looking for, it’s time to find some new clients.
Third, find where real estate investors in your market connect with each other. Most markets have a local real estate investing club meeting. MeetUp.com is a good place to start searching. You can also go to Google and search ‘real estate investing club’ + your city.
Fourth, when you’re at the meeting, your focus initially should be learning what people are already doing to finance their deals and understand if you can help. If you have the opportunity to stand up and share an opportunity or say what you do, the best thing you can do is say something that will connect with most of the investors in the room. You could say “Hi I’m Tim – a local mortgage broker. If you’ve had a bank tell you they won’t finance your investment property or you’re not sure if you’re going to be able to buy an investment property I’d love to chat to see if I can help you. I’ve uncovered a couple of ways you can finance your deals that most mortgage brokers won’t know about because they weren’t looking. Here’s my contact info.”
If you aren’t invited to stand, chat with the other investors and ask good questions. Find the investors who are actively shopping for deals and doing deals. Ask them what they are doing to find financing currently. Find out if it’s working for them. Spend the time to understand what is working and what isn’t. Ask questions like “have you considered finding a mortgage broker that is more specialized in working with investors?” or “Have you tried to put a second mortgage on one of your existing properties – if you’re allowed to – and then using that as a down payment. There is a way we can get that financed assuming a few other ratio’s are met?” Offer some solutions so people see that you know what can be done to help them. Then, give them your card!
Fifth, be responsive and organized. The more streamlined you can make the process for an investor the more likely they will be to come back again and again. Sometimes the lenders throw requests at you that you never could have anticipated, but if many things are likely to be required like leases, income statements from other properties as well as the usual paperwork. Ask for it all the first time.
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Many investors will work solely with private lenders for the reason that it’s simple. It’s more expensive, but there’s so much less paper work and hoop jumping to be completed. So, the more you can do to help them simplify the process the more likely they will come back to you.
Keep your client up to date on where things are at – even if it’s ‘I’m waiting to hear from the lender but while I am waiting I’ve also done these three things to connect with other options in case the lender says no’.
Real estate investors are more work, but if you’re able to get an investor financed where others have rejected them you’ll find that the investor client (and their referrals) are a source of deals that is far more repetitive and less competitive than any other niche market you can tap as a mortgage broker.
Julie Broad can help you get more done in a day and have more influence in everyday conversations. She’s an Amazon #1 Best Selling author, has published over 400 articles online and offline and is a sought after speaker on real estate investing and having more influence. For monthly webinar training and more impact and influence tips visit HaveMoreInfluence.com.
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