With the economy on the rise and a shortage of new homes, an increase in investment property financing, which includes non-owner-occupied residential investment properties and commercial buildings used for business purposes, is creating new opportunities for mortgage brokers to expand their client base.
If you’ve been a mortgage originator for any length of time, you’ve had your ups and downs in the business. Residential lending rules and regulations have risen to a record level of complexity, and compliance with Consumer Financial Protection Bureau regulations only makes your job more difficult.
You may genuinely love the mortgage industry and find it rewarding, but those who have moved on to the greener pastures of investment property financing know it offers many pluses — one of the most significant being bigger paychecks.
If you already have experience in owner-occupied residential mortgages, breaking into residential investment property financing is not as complicated as many originators may think when you know where and how to start. Just follow the steps detailed here.
Choose a Lender with Experience in Investment Property Financing
The first step is to partner with a lender that accepts residential investment property deals using a “residential style” submission package — meaning a 1003 application, credit check, and a simple property rent roll. Stay away from complex documentation requirements, executive summaries and convoluted loan packages that take years of experience to perfect.
When choosing a lender, an experienced account executive can make all the difference. Your AE is at the forefront of your deals. This person will drive and guide your loan submission through the lender’s team of managers, underwriters, processors and, ultimately, decision makers.
AEs don’t have the final say in whether a deal gets done or not, but the investment property financing process will go much smoother if you have an AE you enjoy working with and who knows how to get deals done. A good AE can prevent problems in file submissions before loans get to underwriting. Avoiding problems translates to more funded loans and quicker closings.
Simplicity and Consistency Is the Best Strategy
When starting out, make it easy on yourself. Don’t try to serve every borrower. Focus on a specific audience, property type, and mortgage program rather than trying to learn about programs from multiple lenders and then trying to figure out what each of them will need to close a loan. Simplicity is the key to your success.
As your pipeline begins to fill, you should focus on efficiency. The faster you can provide the underwriting team with the documents needed for a loan; the faster your deals will close. Appraising a residential investment property is typically easier than a commercial investment property. In commercial lending, the appraisal is often the big hang-up in timing. If it takes two or three weeks to get loan docs to the lender, another three to four weeks for the appraisal and then processing time for post-appraisal reviews, your paycheck can get delayed by a month or more.
Know what documents you need, get them all from your borrowers up front, and check their accuracy. Make sure there are no missing signatures or omitted information and send them to your lender promptly. Providing complete documents will significantly speed up your closings and get you paid sooner. If paperwork is not your forte, use a loan processor to help get it done.
Finally, be loyal to your lender. A lender that consistently funds your deals, combined with an AE you trust is the perfect match. Consistency can improve your cadence and loyalty increases your value as a client to the lender. Stay where you have excellent support. It’s much easier to fill your pipeline and churn out closed deals when you have a solid team in place that you trust to get it done. Concentrate on building your volume and that loyalty will pay off in your bank account.
Find an Investment Property Financing Partner
As your investment property business begins to grow, don’t slow things down by trying to do everything yourself. Combining your talents with another professional who is also familiar with investment property financing may be a solution. Look for someone who sees the benefit of teaming up and whose personality and work ethic match your own.
Perhaps you are good at marketing and finding prospects. Maybe your partner is good at speaking the commercial language to borrowers and handling the processing. Whatever your arrangement, be clear about who is doing what and how you each get paid. Generally speaking, neither partner makes money unless deals fund. After that, be fair about how you share commissions and honor the agreed-upon split. You might even enjoy working with another professional on deals more than doing it alone.
Don’t Be Afraid to Learn on the Job
Speaking of learning, if you think you can learn all there is to know about commercial property lending quickly, it’s not going to happen. It will take months of work and several closed and lost deals to gain a complete understanding of the commercial property market. Commercial property appraisals are more complicated than residential appraisals, and every transaction is different. Only after repeating the process over and over again will you start to understand what to throw out, what to keep, what to look for and what not to waste time on.
However, make no mistake. Starting is the most crucial step to getting started. Investment property financing is a specialty you learn by doing. Yes, you can get training. You can read, study and get tips from lenders and colleagues, but a hard-core understanding of investment property financing comes from doing. As your average loan value increases, your commission checks get bigger, allowing you to fund fewer loans to earn a nice living compared to residential home mortgages.
The way you keep moving is to keep bringing in new deals, keep your pipeline full and, like any other job or profession, do your best and work smart. There is always something new to learn, even after decades in the business. Don’t let that stop you. Consider it a challenge to go to the next level in your career.
Acquiring Investment Property Clients
Networking, marketing, and meeting with prospects are the keys to filling your pipeline with deals. Get out there and let people know you offer investment property financing. Creating awareness among investors and real estate brokers is the key to growing your business.
Good old-fashioned cold calling is a great way to get new business. You can also place online ads, send emails and attend investor meetings and events where an investment property financing partner is needed. Reach out to past borrowers to see if they own investment or commercial properties. Have business cards printed and hand them out whenever you get the chance.
You may also need to create a new website to promote your investment property financing services or update your old site to include them. Each marketing tactic adds up at the end of the month. You need to use multiple sources and methods to get deals coming to you. Once you hit what works, do more of that.
Providing exceptional service will also make other professionals want to work with you and increase your referral business. While building a reputation for excellent service takes time, it can happen faster than you think if you stand above the competition in your responsiveness to prospects.
Once prospects come in the door, treat them right all the way to closing. Be upfront, honest and forthright. If there is a problem, say it. Don’t hide issues that could blow up your deal. It’s a waste of time for everyone involved. Ask questions and provide solutions. Follow through with what you say you will do, and don’t make promises you can’t keep. These traits will make you stand out in a crowd of originators as a trusted professional. Who knows? At some point, you may decide to leave the residential side of the fence and stay on the “greener side” for good.
Is investment property financing for you? Only you can answer that question. Partner up, try a few deals and see where it takes you.
Reprinted with permission from Scotsman Guide. To subscribe, click here.