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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2007

Help Clients, Help Yourself

Informing borrowers of homes’ investment potential can generate more leads

With mortgage originators now competing more than ever for business, some are paying for business coaching, sales training and computer systems to help create more referrals that hopefully will lead to more loans. But there’s a better way.

By letting clients know of the investment power of real estate, mortgage brokers can create a wealth of leads.

Although it’s always wise to point borrowers to certified financial planners for advice brokers are not certified to give, the following steps can help turn your clients from first-time homebuyers into real estate investors.

Buying to sell

A wise man once said, “You make your money when you sell.”

In general, most real estate investors will break even or produce only a small cash flow during ownership. The big money comes when a property sells. At that time, investors will get their initial investment back (i.e., their down payment) plus a profit.

If done properly, and in the right market, the profit can be many times more than the original investment. Multiply this profit by several properties, and it’s easy to see why some clients have quit their day jobs and invested in real estate full-time.

While many first-time buyers say they intend to live in their new home for at least 10 years, a large percentage actually move out within two to four years. Because of this, first-timers could consider purchasing their home with the goal of selling.

If they take this route, they also should aim to buy in an area of high appreciation. Buying where appreciation is high may be worth the extra equity that can be accumulated in a short time.

The key to making income in real estate is the velocity of appreciation, also known as the speed of property-value increases. It is better to buy properties with a high velocity of appreciation.

Generally, homeowners and investors want their property values to grow as quickly as possible. By choosing properties with a high velocity of appreciation, your clients can profit faster.

Borrowers also can gain tax exemptions for primary-home sales as well; be sure to tell your clients to consult a tax adviser for details.

The point is: Your clients’ first homes can be launching points for future real estate investments if they buy to sell.

Monitor monthly cash flow

Making money monthly isn’t necessary in the overall scheme, but it can be important for borrowers when starting out.

Rather than investing in one property at the edge of their means, clients could consider buying multiple lower-priced properties. As a financial adviser will tell them, this could help them diversify their investments and pay less cash upfront. This approach also can dampen the risks that come with property damage, something that increases when more money goes to a single investment.

Some clients with multiple properties rent them for enough to offset their monthly expenses, such as mortgage payments and maintenance. The goal is to at least break even during the holding process.

•  •  •

By pointing the right clients into real estate investment, you can gain more loans to close and attract a strong referral base — from clients and from their real estate agents.

Mortgage brokers who successfully turn first-time homebuyers into real estate investors often will find that their lead network takes care of itself.

 


 


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