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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2006

From Toss to Treasure

By capitalizing on the commercial deals that come their way, brokers may find a virtual goldmine

r_2006-06_Daugherty_spotMany agree that the residential refinance boom is ending, and residential brokers know that generating residential purchase business in a competitive market is not easy. By adding commercial loan products to your repertoire, you can work smarter instead of harder, sidestep the difficulties of residential purchase business and increase your bottom line throughout the year.

In a year, a typical residential mortgage broker probably will stumble on at least two to three unsolicited commercial opportunities. Many, however, throw these loans away because of a lack of knowledge about commercial financing. If each opportunity is $5 million, that can be as much as $15 million in loan volume. Brokers can earn a 1-percent commission of $150,000 just by opening the door when opportunity knocks.

With education, research and getting the word out, taking on the opportunity that commercial financing brings can help you increase your business and your bottom line.

Get educated

There are some common misconceptions about commercial financing, but there may not be as much “red tape” as many may think. For starters, you do not need a commercial license in most states. Commercial financing also is not governed by the Real Estate Settlement Procedures Act.

So with just a little effort, you can easily take advantage of the opportunities knocking at your door. Here are some ideas to get a head start:

  • Read all about it: Much of the basic knowledge you need is easily available. Industry publications contain a plethora of knowledge. Many trade publications will post past articles online, as well. In addition, there are countless books on investing in commercial real estate available, which will give you a frame of reference for dealing with commercial real estate investors and speaking their language.

  • Learn as you go: Commercial account executives will be happy to walk you through your first few loans and should always be there to answer questions, whether it’s your first loan or your 50th loan.

  • Formal education: Local colleges or universities offer classes, along with real estate schools, that focus on fundamentals and in-depth analysis. Many of these classes range in length from a few hours to a few days. The time commitment on your part is small, but the education is valuable and lucrative. Local real estate and mortgage-brokerage branches also may have staff that can point you to resources or even offer training themselves.

Find some lenders

As you move forward, you will learn that commercial financing has some key differences from residential:

  • Residential brokers typically specialize in Department of Veterans Affairs, Federal Housing Administration (FHA), nonprime and/or conventional loans — a pretty broad umbrella. Commercial lenders, on the other hand, specialize by property type (e.g., multifamily, office, mobile-home park), loan amount, loan to value and/or loan purpose (e.g., refinance, purchase, rehab, hard money, construction, etc.).

  • Each lender will have its own guidelines and criteria. If you’ve dealt with nonprime lenders, you have likely already encountered this. One size does not necessarily fit all.

  • Lenders vary in how they work with brokers. Some accept loans from brokers. Others will require you to use one of their approved correspondents. You’ll notice the similarity if you had to get approved by the Department of Housing and Urban Development to originate FHA loans and also in your pricing maximums when locking a rate. Only some commercial lenders offer yield-spread premiums. Most offer their programs at par, and others charge fees. Regardless of the fee structure, you are sure reap rewards for your efforts.

  • Many of the commercial leads you will receive as a residential broker will be small (roughly $100,000 to $3 million) multifamily, office and retail loans. The reason is that “bigger players” — those who wish to purchase or refinance a $15 million office complex, for example — will have commercial lenders knocking at their door to compete for financing their project. Smaller investors who are looking to move into commercial investing will typically start small with the resources they have and will automatically look to you — the person who helped finance their home — as an influential source. Thus, you should learn about financing options for these property types first. This will help you form your basic knowledge base for commercial. Find a few lenders and learn about their programs. Then branch out as your knowledge base grows.

Spread the word

With so many residential clients moving into small real estate investing, you may have a virtual goldmine at your fingertips. When you get the hang of commercial financing, let your clients and colleagues know you’ve added it to your lineup. Making your expansion public knowledge will increase the number of commercial inquiries you receive. Be sure to announce it in your current marketing, on your Web site, in your voice-mail message and in your e-mail signature line to get the ball rolling.

In addition, let your residential colleagues know they can refer their commercial business to you. If some of your colleagues are already working on commercial loans, they can be sources of knowledge and expertise for you. Plus, there are many different niches in commercial financing you can branch out into and specialize in that they may not cover, so you can still generate referrals from commercial colleagues.

You don’t have to overextend yourself to capitalize on this profitable venue. Taking these simple steps can help you expand your existing business revenue while enabling you to work smarter, not harder. 


 


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