Private mortgage financing for commercial clients can increase your income

Don Konipol, general partner, Managed Mortgage Investment Fund LP

As published in Scotsman Guide's Commercial Edition, August 2005.

Picture this. You’ve spent the last four months trying to get your client a mortgage on an investment property. You gathered all the necessary personal, business and real estate financial information, not only for the property you’re trying to finance but for all of the client’s business and property interests. You’ve done projections, forecasts and read through 200-page appraisals. You’ve put together a loan package and sent it to numerous commercial mortgage lenders, only to find that each one needed the same information filled out on their particular forms. So you then spent dozens of hours more transferring the same information to several different applications and obtaining “additional information” for each potential lender. And now you’ve exhausted all possible institutional mortgage sources and still have no loan for your client. Sound familiar?

Perhaps you’re new to the commercial mortgage field. Maybe you have been successful originating residential loans, so you took a commercial mortgage course and decided to expand your practice to include commercial and investment-property mortgages. Or maybe you’re a veteran commercial mortgage broker, successful in obtaining financing for some clients, but feel you just spin your wheels trying to obtain financing for others.

In any case, the key to spending your time more productively is to understand when institutional commercial mortgage money is not available to your client. The key to earning a commission from these same clients is to understand what type of financing may be available to them. Approaching private mortgage lenders for loans on commercial investment properties would be helpful to your clients — and profitable for you.

Private mortgage loans are loans secured by real estate and made by private lenders instead of banks, lending institutions or government agencies. They are short-term (ranging from six months to three years), hard-money or asset-based loans made to real estate investors for the purchase, rehabilitation or equity cash-out of real property.

This means that the decision to lend is based on the equity and value of the property being put up as collateral, not on borrowers’ credit. The security for the loan is enhanced because the loan represents a maximum of 65 percent to 70 percent of the appraised value of the income-producing property. On non-income-producing property (e.g., raw land, lots, construction money), a maximum of 50-percent loan to value is lent. Borrowers can expect to pay interest rates of 12 percent to 14 percent on first liens and four to 10 points in this current low-interest-rate environment. Historically, a first-lien yield of six points over prime has been obtainable.

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