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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2007

Investor Clients and the Need for Speed

Match real estate investors with the right loans and lenders for a steady client base

Real estate investors can be can be mortgage brokers’ dream clients. These investors make frequent residential purchases and may call on brokers for their services several times a year. But to take advantage of what real estate investors have to offer, brokers must understand these investors’ needs and how to fulfill them.

Many investors are skilled at finding, renovating and selling houses, but they often do not have an endless supply of cash. When they must come up with big downpayments or lots of repair money, they find their purchasing power limited.

To solve this problem, many savvy investors seek two types of creative financing — hard-money loans and private loans — which brokers can help them find.

Hard-money loans

Hard-money loans are based more on the value of financed property than on the borrower’s credit and income. These loans allow almost anyone, no matter their jobs or spending history, to profit from finding a house and negotiating a discounted price. Think of these loans as “the great equalizer.”

Although hard-money loans are more expensive than traditional loans, they still appeal to investors. Unlike average homebuyers, investors often are only concerned with fees and interest rates to the point where these payments hinder their profit. They can’t afford to spend time shopping for the best interest rate what it can mean losing the deal altogether.

And losing the deal is a definite possibility —there is often tremendous competition to buying an investment property at a discount, and acting fast is crucial. Investors want to close with little hassle, while tying up as little of their precious capital as possible. Therefore, it’s necessary to find a lender that can process and close a loan quickly, usually in less than 30 days.

As a broker, you should contact and prescreen a number of hard-money lenders. Keep a record of the ones that can close quickly and do not require high credit scores or income verification. These lenders may be the best match for your investor clients.

Private loans

Private loans also can help investors who do not want to tie up their capital in a property purchase. These are loans made by private individuals or companies that do not generally advertise their services as a lender to the public.

Private lenders often are flexible, as well. They can lend investors money to be used as a downpayment, for closing costs, for repairs or even for holding costs until the investment property has been resold or refinanced.

This can create a no-money-down deal for investor. And without a downpayment, investors have the freedom to buy and renovate as many properties as they can handle. Although no-money-down loans can be risky when made to homeowners, the scenario is different for investors buying properties below market value and the intention of selling them for profit. The best lending candidates are people who desire a passive investment with fixed returns.

The challenging part of these loans is getting them started. Brokers must locate private lenders and start a relationship with them. It’s also wise to check the U.S. Securities and Exchange Commission guidelines and state lending laws before originating loans from these private financers, but this process often will be worth the time and effort.

•  •  •

Investors are rarely concerned about loan products’ names, how big a lender is or how long it has been in business. But they do care about getting a loan as quickly as possible with minimum hassle. Hard-money and private loans fit this bill, and using them can be a way to keep your real estate investor clients happy. 


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