To buy real estate, you will need to get financing from a bank unless you are going to pay cash. Even if you do win a deal paying cash you might want to refinance the property later to get better returns. Part of the magic of real estate is using leverage. If you own a $10 million property in cash and it increases in value by $1 million then you made a 10% return on that cash if you sold. If you got a loan for $8 million and only have $2 million in cash invested, then your return would be 50% if you sold, i.e., your $2 million of cash in the deal is now $3 million or 50% more. A good mortgage broker can help you get the right leverage for your deal and should understand the risks of each loan type available.
1. Lending Choices
Your local bank as you are probably aware has lending options for real estate. You likely have a good relationship with a bank that you have used for a long time, and they could provide a home loan for you easily. You could also call other banks and apply for loans online to see what kind of rates and terms you can get. The same can be said for multifamily loans. You can shop around and look for the best deal. However, that is fairly time consuming once you start getting into the double digits. Furthermore, banks may not always advertise you the best rates. You have a lot of tasks that need to be completed when closing a deal: 3rd party reports, due diligence, gathering documents, raising capital, etc. A mortgage broker can guide you through the process and assist with closing. A good broker will have a lot of different lenders at their disposal with a preexisting relationship to get you the best rate and terms.
2. Connections
Mortgage brokers are well connected with other real estate brokers and professionals. They often have deals available that will not be advertised to the public. If you work with a mortgage broker, they are likely to pull favors for you and help you win the deals. The better relationship you can establish with a good mortgage broker, the better your chances of getting a good deal. On top of being well connected they also have access to property information that might not be available from the seller or online.
3. Guidance
Closing a bigger deal can be tricky, that is why it is good to get guidance and have someone with a good relationship with the bank to guide you through the process. Also, things tend to move quickly in the financial world and if for some reason the bank you are using decides to pivot, you do not want to be caught flat-footed. A mortgage broker can quickly move to another trusted lender and save you time and money especially when there is hard money on the line. Lenders are busier than ever—a mortgage broker can help get your deal looked at sooner and floated to the top of the pile of deals lenders are looking at.
4. Team Member
Mortgage brokers are another person on your team just like your attorney, accountant, or property manager. Each has specific knowledge and skillset. You could do each on your own if you wanted to learn, but a good team member saves you time and money. They want you to succeed and they want you to make money. They also want to develop relationships and help you out on future transactions. You have a more certainty of closing with a mortgage broker on your team.
5. Continuing Support
After the deal closes you can still consult with your mortgage broker about your property or if you need a referral. You can also stay connected and continue to receive support while you go after your next deal. It has been my experience that if you are a real estate investor and you do a deal, you will keep doing deals.
Conclusion
With the advent of YouTube, anyone can be a do-it-yourself type. You could call as many banks as you want and pitch your deal to any number of lenders. But if you want to save time and money it is always best to hire an expert. If you have a question about commercial multifamily lending, please reach out to me at jwilson@oldcapitallending.com. Old Capital is a commercial and real estate debt & equity team that closes over $1 billion in transactions annually.
