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Here's another consideration that can make both the investor and the broker money: It's helpful to give your investor clients some basic information on your financing requirements. Investors can use that information to find a better-qualified buyer to sell to so you don't have to do so much paperwork repeatedly for unqualified buyers. If they know your basic requirements, it's easier to have more-qualified borrowers in place.
When you work with an investor regularly, you likely can rethink your prequalification procedures. The investors are looking for good deals. Sometimes, they'll need financing in just a few days. To speed things up, you can check them out in advance to see what they can qualify for. You likely can arrive at a basis for lending based on something other than just their own income.
Consider the income value of the property the investors might find, plus the disposable income they have available. If you determine that they can afford an extra $400 per month, for example, then would it be out of line to tell them so upfront and to agree to fund a property that has a cash flow requiring less than that?
Maybe you would like to require that a tenant be found before closing so you can assure the income stream before closing. It's likely that the investors will be doing that for themselves. They want to make sure they have someone moving in at the same time they make the property available.
If you're concerned that a property is empty or needs rehab, set aside funds for those concerns in a separate escrow account. The key is to be flexible and work out these possibilities in advance so the investors can use them in their search for good deals.
Most investors realize that there are upfront commissions, various expenses and profit expected on any loan funded, and it takes some time to recoup those costs on an interest-charging basis. They also understand that this is what points are for.
If investors have a good broker, most would likely be willing to pay some extra points for the higher LTV, faster turnaround and some advance information. Because they are not owner-occupied buyers, they are not as concerned with each nickel and dime to get the lowest-possible payment or entry cost. They recognize that it's about numbers. If the numbers work, they make money, even if it costs them a little more upfront.
Believe me, if you go to any real estate investors' meeting and tell the audience that you have a combo package that can get them 100-percent to 125-percent contract financing on a non-owner-occupied property based on appraisal value and that you will help walk them through the process to find better buyers for their properties, you'll have to beat them off with a stick to get out of the room.
Dr. Ken Rich is a retired physician and current real estate investor.
His background includes being a commercial real estate broker many years ago before entering the medical field. Rich mentors many students across the country and actually conducts active business in most states. He resides in La Habra, Calif., and he can be reached at (562) 694-8060.
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