'The foundation for these relationships is built on a broker referring deals to respective lenders'
This article was created in partnership with RCN Capital.
In the real estate space, mortgage brokers can grow and scale their business by exploring alternative financing opportunities and expanding their program offerings. While there is a compelling argument for finding a niche and mastering a specific style of lending, it can be valuable to familiarize oneself with other sources of lending.
Establishing and growing relationships with private lenders is a great place to start, as it can unlock brand new sources of information and allows brokers to keep their finger on the pulse of what’s happening in the current market.
The foundation for these relationships is built on a broker referring deals to respective lenders. The lender finances the deal, and the broker is rewarded financially for their referral. While seemingly straightforward, there are several missteps that brokers can make in partnerships with lenders that can stunt their business.
The good news is that these can be easily navigated simply by doing some due diligence regarding client needs and lender offerings. Doing this leg work upfront can keep brokers ahead of the game and ensure an overall smoother process when referring deals, therefore leading to faster loan closings and business growth.
Understanding program offerings
The private lending space is still a relatively new source of funding, and it continues to expand and get more innovative as time goes on. While a lot of lenders will offer programs that are similar on the surface, often there can be more intricate details that differentiate each program. Since investment deals fall under the realm of commercial lending, guidelines and terms are more flexible and can change quickly as the market moves.
Therefore, lenders are always going to want their broker base to have the most up-to-date information and make sure they are aware of any adjustments to their programs. Still, that doesn't mean relying solely on the lender to reach out regarding any changes. Staying ahead of the curve by having a beat on the current market conditions and what methods investors are utilizing are profoundly important to a broker’s business when it comes to providing value to clients.
Establishing relationships with an assortment of private lenders is a proven way to access expert knowledge. It is also critical to know what each lender specializes in. As the private lending space continues to evolve, lenders tend to focus primarily on a specific niche when it comes to their program offerings. Some lenders focus on residential investment properties, while others lean more towards true commercial buildings like office spaces and retail stores. In addition, there are lenders that specialize in financing single-family housing as well as those who focus mainly on larger multi-unit properties.
Having these relationships in place and knowing exactly where to take a specific deal can avoid common mistakes and lead to a more efficient brokering process.
Knowing the client’s goals
Aside from building strong relationships with private lenders, a broker’s relationship with borrowers is just as important. Investors are always going to be in the market for capital, so having direct access to a network of lenders is a vital asset for brokers.
When establishing a relationship with a potential client, setting aside time in the beginning of the conversation to ask about their goals, as well as more personal information like their estimated credit score and budget is well worth the due diligence.
As an example, if a borrower expresses interest in a fix and flip investment deal and the broker reaches out to a lender that specializes in these projects, a good amount of time and energy can go into prospecting for that potential loan. However, if that borrower can’t qualify due to a low credit score, tough conversations need to be had, and relationships can become strained. Scenarios such as these can be avoided by a broker knowing the lender’s requirements to qualify and having that conversation up front with the borrower.
Having the knowledge of the client’s goals, financials, and capabilities. This paired with expertise in the programs provided by a network of lenders up front can allow brokers to navigate potential issues and tailor the best program for their clients.
Setting expectations
It cannot be overstated how concise communication and transparency with clients can save brokers a lot of headaches. When referring deals for commission is relied upon to make a living, it can be easy to do and say whatever it takes to secure the business, even if it’s not a great deal on paper. This is a common mistake that can lead to dissatisfaction and ultimately cost brokers business.
A great way to prevent these common mistakes is to set aside time for a phone call or a Zoom meeting with clients and walk them through a lender’s process step-by-step to address any misunderstandings.
Talking through every stage, starting with pre-approval, term sheets, loan structure and expected timeframes lets the clients know what they are getting into with a private lender and allows them to make informed decisions. This also shows clients that their business and time is valuable to the broker, and making the effort to address any questions or concerns demonstrates that their best interests are being prioritized.
Failing to communicate effectively and in a straightforward manner can lead to clients questioning their confidence in the broker. Bring honest and valuable insight into every conversation had throughout the loan process so that the foundation of trust can be established between client and broker.
Become a trusted advisor
It cannot be overstated how pivotal the role of a mortgage broker is when it comes to connecting lenders and borrowers. There may be a learning curve and mistakes can be unavoidable, but the key is to adjust and refine processes to negate those mistakes in the future. Real estate brokers are relied upon to be experts in the field and to advocate on behalf of their clients.
By implementing effective strategies, brokers can avoid the majority of common mistakes and guarantee their clients are in good hands. Ensuring that clients are paired with lenders that benefit their needs will in turn lead to long-lasting partnerships and leave a positive impact on the broker’s reputation.
You can find access to more helpful information on this topic at RCN Capital
