Residential Magazine

Branch Out

With residential lending in the doldrums, look to commercial deals to grow your business

By Nate Zielinski

Due to record home price appreciation, a lack of inventory and rising interest rates, many potential homebuyers pulled out of the market in the latter half of 2022. Suddenly, real estate agents and mortgage originators struggled to find leads. Consequently, originators have been searching for alternatives to replace lost business. One possible option is to broker commercial real estate loans.

Residential mortgage brokers are already familiar with the owner-occupied housing market. It isn’t too much of a leap to close loans on the same types of properties for investors who are either fixing and flipping homes or using them as long-term rentals. Brokers also can venture into other types of commercial mortgages.
To do so effectively, residential originators should consider aligning with private lenders. There are plenty of benefits for these brokers to access when they enter into the commercial lending space, especially if they partner with a private lender.

Flexible approvals

The first benefit of a commercial loan is that a borrower can get approved more easily. On the residential side, a buyer sometimes can’t qualify for a loan, so the originator loses out on the client and their fee. But this scenario is much easier to avoid in commercial lending. Private lenders will help your clients qualify on a more consistent basis due to a much less invasive approval process.
Annual income statements and tax returns are not required on many commercial mortgages. Business-purpose lenders may not even require a borrower to be employed outside of their real estate investments. These less restrictive guidelines have attracted many investors to the real estate space, and brokers should follow suit to earn more clients and replace lost business.

Brokers who build successful relationships with lenders and investors — and solve problems for both sides — can propel themselves to the top of the industry.

Commercial mortgage lenders use lower credit-score requirements, whenever possible, to get a residential broker’s client approved. And brokers who strictly close residential loans for primary homes may be shocked by how few documents a private lender will request for closing.
These lenders enjoy the luxury of gauging how profitable the asset will be, so a property with strong cash flow or a high return on investment can outweigh any borrower shortcomings. If the deal makes sense for all parties involved, there’s a solid chance that the client will get approved.

Repeat business

Another aspect that attracts residential originators to commercial lending is the potential for repeat business. Once an originator closes a traditional home loan, they may never hear from the client again. In fairness, why should they? They helped the borrower secure their dream home and both sides benefited from that singular deal.
With commercial real estate lending, however, there is much less downtime. If a client finds success as a fix-and-flip investor or long-term landlord, they’ll usually look for additional investment properties by scanning different markets across the country. A variety of loan products and strategies can intrigue these clients. Brokers can provide the expertise that these investor clients need.
Investors were responsible for about 28% of all single-family home purchases in February and March of last year, according to CoreLogic. Although there were signs that investors were leaving the market toward the end of 2022, there are always opportunities that will attract investors. A potential client can have many different financing needs at any given time.
Take, for example, an experienced borrower who has multiple investment properties. As a broker, you can relay strategies such as a cash-out refinance to tap into existing equity; a fix-and-flip project with a short process and a strong return on investment; or a long-term rental in a popular up-and-coming real estate market that can lead to passive income for decades. The key distinguishing factor that makes the brokering of commercial mortgages so appealing is that the sky is the limit with these experienced investors.
With conventional lending for primary homebuyers, banks become much more conservative as a borrower takes on more debt. In the real estate investment space, however, lenders are seeking out the experienced borrowers who are taking on debt, because it proves they are paying off their loans while gaining equity and knowledge through their investment strategies. There is essentially no cap on how many loans a real estate investor can have with a private lender, just as long as the borrower proves they can afford it. By not setting a ceiling for these investors, brokers can earn commissions on multiple loan closings.
Originators can grow their business exponentially due to this fact alone. And they can find investor clients who are just starting out and grow alongside them. Brokers then become an asset to their clients by laying out and explaining all of the available loan products. Giving investors the tools to succeed will make them want to come back to you. Repeat business can grow naturally through this process.

Countless opportunities

There are three pillars in the world for residential investment properties: lenders, borrowers and brokers. Lenders and investors rely on brokers daily to help them close loans. And lenders are looking for brokers to get out there and market their loan programs.
There also are investors looking for options to diversify their portfolios. Lenders will train and advise brokers in these situations whenever possible, and they’ll offer marketing materials that can give a broker confidence when heading into a client meeting. Once they become familiar with each other, the broker and private lender can fulfill client needs at a much faster rate.
There are many ways that a private lender can accommodate a productive broker’s requests during the mortgage process. On the investor side, brokers can obviously form relationships over time with people who close deal after deal. And there are numerous ways for brokers to connect with new leads.
There are social media groups, local-level real estate investor associations and nationwide trade shows. As a broker, is it important to have a presence on social media and at events, thereby serving as a resource for investors. There are countless opportunities, and with private lending guidelines being much less stringent compared to traditional home loans, brokers and investors can come together from across the country and still get deals done.
Residential originators who venture into commercial mortgages will want to make an impact locally, but they’ll also want to expand to every important market in the nation. Brokers who build successful relationships with lenders and investors — and solve problems for both sides — can propel themselves to the top of the industry.
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These benefits are just the tip of the iceberg for residential originators who are thinking about transitioning to commercial lending. Don’t hesitate. There are so many potential opportunities out there as investors and lenders are constantly searching for broker support. ●


  • Nate Zielinski

    Nate Zielinski is the business development coordinator at RCN Capital, a nationwide private direct lender. Zielinski joined RCN Capital in 2020 and aims to develop long-lasting business relationships with brokers and borrowers, as well as to maintain the company’s existing relationships. Zielinski’s prior work experience includes sales, advertising, copywriting and social media. He graduated in 2015 from the University of Connecticut with a journalism degree and a related area of study in communications while working at the school newspaper and radio station. 

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