Industry veteran says brokers who target investors are doing well regardless of rates
With conventional pipelines slowing down due to the current market conditions, many brokers and originators have started to expand business into the investor loan market.
With a bevy of surging products like DSCR and bank statement loans, the investor space is not only filling a slower pipeline, but potentially positioning brokers for future deals regardless of rate conditions.
Private investors, the people with a handful of properties rather than a large fund, are a big part of the investor market. Getting deals with investor clients can often earn originators multiple loans rather than just one every few years.
Bill Dallas (pictured top), chairman of Dallas Capital, has spent more than 40 years in the mortgage industry, including a stretch as a hard money lender when rates doubled to 20%. He suggests that if loan officers and brokers are only counting on referral partners to find these investor clients, they may be missing out.
"The first thing I would do is not focus on just realtors and my referral sources," Dallas told Mortgage Professional America. "Yes, you have to have referral sources, but don't let that be your business."
Who the investors are
Dallas sees a growing pool of buyers who fix, flip, and hold, a trend he called an "HGTV movement." The purchase market is splitting at the same time, he said, with buyers who put little down at one end and all-cash buyers at the other, and that barbell will need its own strategies, he added.
"Almost every home in America is 50 years old," Dallas said. "Everything needs new stuff."
That shift favors lenders willing to step outside agency loans, he said. Dallas made that move himself in the 1990s: after rates rose and borrowers pulled back, his first company, First Franklin, shifted entirely to non-prime lending.
"The best thing I learned about mortgage is the other shoe is going to drop and kick me in the face," Dallas said. "And I best have a strategy for that all the time."
Today, he said, that strategy points toward non-agency borrowers. He also expects brokerages and banks to gain ground at the expense of independent mortgage banks.
"You've got to go after non-owner-occupied, second homes, and all these other things, because that's where the world sits right now," Dallas said.
The investors he has in mind are individuals, not institutions like real estate investment trusts (REITs). They are the people who decide to buy a second home or pick up another property to flip.
"I'd say about 80% of the investor market is private," Dallas said. "People who have more than two to three houses or investments, not big REITs."
Large REITs hold a very small share of that market, he said. The properties private investors buy are often mixed-use, which makes them harder to finance.
"I got two clients that just do this, and they're doing extraordinarily well," Dallas said. "They don't care about interest rates, right? They don't care about the 10-year. It's like this is all about finding investors and helping investors buy, sell, finance, hold, rent, trade property."
Where to find them
While realtors and other referral partners can be a great source of business, brokers looking to get into business-purpose real estate loans can find clients in other ways.
"Loan officers ask me all the time, 'Well, how do I get that?'" Dallas said. "There are like hundreds of databases you can get. And at the end of the day, I took my first group to a Chamber of Commerce meeting in their little town. I said, ‘Here's where they are, right? They all own businesses. They all own the property that they’re in, in a lot of cases. And they all need money. And they all probably have a residence, or are looking for one, right?’
"So it's like they go, ‘Wow, I've never had such a reception.’ Because these people need you."
Realtor-led business is also getting squeezed, he said, as consumers use AI to find homes on their own and commissions compress. Top originators will still win, he added, though there will be fewer of them.
"You still need a trusted advisor to get that deal done," Dallas said.
Non-agency lending carries risk of its own, Dallas cautioned, since that is where occupancy, income, and assets get tested. DSCR is the product he singled out.
"DSCR is sort of the closest thing you've got to a stated loan, and that's already showing some issues," Dallas said. "But look, absent fraud, mortgage is a great business."
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