How to help your customers build for the future
One of the many reasons mortgage brokers give for buying a house is to begin building a homebuyer’s future wealth.
As property appreciates and the loan is paid down, the homeowner strengthens the foundation of their financial future. The next step in strengthening that foundation often involves buying an investment property.
While first-time homebuyers might not be thinking about an investment property when they sign their first mortgage, two long-time mortgage bankers believe it’s never too early to look ahead.
Craig Andriulli (pictured top left) and Michael LiPari (pictured top right), managing partners of Fortress Mortgage Advisors, work with homeowners to build a long-term plan for wealth growth.
“A lot of clients are almost surprised when we're having a conversation about them buying their first home, asking if they have goals of buying investment properties in the future,” LiPari told Mortgage Professional America. “We ask, ‘Do you have a dream of a beach house one day?’ So we know that the first one that they're purchasing is aligning with that.”
Planning years in advance
Regardless of the transaction, brokers need to keep homebuyers focused on the road ahead so they can put themselves in a position to gain wealth in the future.
“Whether you're the one making money off of selling a home or building a home, or you're the end user trying to buy a home, you're doing these things to advance yourself financially throughout life,” Andriulli told Mortgage Professional America. “So we utilize financing to try to fill the need so that they can accomplish that goal, and again, start moving towards the next goals.”
Sometimes customers think those future goals are out of reach. LiPari said that’s part of what makes the consultative nature of their business so important. They can do a full analysis of their situation and show clients that they might be able to afford something they thought was impossible.
“A lot of times, we’ll help people uncover that they can do it sooner than they thought,” LiPari said. “We can help people uncover using leverage to acquire properties a bit sooner. A lot of that's in the vacation home space. We work with a lot of clients who will say, ‘I love vacationing wherever, down at a beach community, but we're not quite ready to carry the property ourselves.’
“We say, ‘Well, you told me you've been renting there every two weeks out of the summer. I know that's not cheap, so we could even look at a model for them to see if they do almost like a hybrid, where they rent the property out most of the year, but they leave one week for their family. Now they've bought the asset.”
By choosing to structure the deal that way, the homeowner picks up the investment property years before they probably thought they would, which means they likely get it at a discount compared to what it would cost to buy it in a few years.
“Most vacation areas, specifically in New Jersey, those are not going to stop appreciating,” LiPari said. “So you have the asset now, and it might be 10 years from now before you feel comfortable having that truly as a sole second home, but you're going to be happy 10 years from now that you did it this way, because it’s going to be that much more expensive in 10 years.”
Leveraging mortgage debt
Brokers can work with homeowners to look ahead, allowing them to leverage the built-in equity in their current properties to acquire more properties. It takes planning and foresight to get borrowers to understand that a little short-term debt can turn into major long-term wealth.
“I've said to many clients in the past that the main reason I got into real estate investing was watching clients early in my career, seeing people that had a great portfolio of properties, and they did that through leverage,” LiPari said. “Most of those investor clients did not pay cash for all those properties.
“Speaking to that savvy investor who does not like mortgage debt, and they're proud that they own two properties, free and clear. During those conversations, the light bulb goes off. ‘Wait a minute, I can take money out of both of those properties, and they still can be self-sufficient. Now I can grab three more.’”
While some might hesitate to cut into profits on those initial properties, LiPari points out that even if there is an initial cut in profit, there are tax and appreciation benefits that will make it worth it even in the short-term. In the long term, it will pay large dividends.
“If you can get them to be at least net neutral, you're getting tax benefits,” LiPari said. “You're getting the upside appreciation, and eventually, rates start coming down more, and rents go up. It can turn it into a positive cash flow. It all becomes part of the grand plan with the client realizing they can acquire more properties.”
This is why the advisor role for brokers, originators, or mortgage bankers is so important. It’s part of a different way of thinking that Andriulli and LiPari embrace, and for partners and customers who get on board, it can completely change the way they do business.
“It’s a different approach,” Andriulli said. “Inevitably, some people don't really know how to get into that rhythm, because they're so used to doing things for a long time a specific way, but the ones that do get it see tremendous growth. And we love those opportunities.”
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