4 Things Investors Should Look For In Commercial Mortgage Brokers
If you are ready to invest in residential or commercial property as part of your real estate investment strategy, one of the first decisions you’ll need to make is where to get financing. Many real estate investors hesitate to work with a commercial mortgage broker because of the commission involved, but the truth is that the value you can receive from a commercial broker usually outweighs the cost of the service.
Here’s what you need to know.
Why Commercial Mortgage Brokers Are Good for Your Investment Strategy
What are the benefits of working with a commercial mortgage broker, as opposed to applying for a commercial real estate loan directly with a local bank? First, a broker can save you time and money by helping you secure the most profitable deal quickly. Brokers handle more loans and have connections with a broader network of lenders than you do as a borrower—especially if you are also a small business owner or have a 9-to-5. That means they have more resources available to find and secure the best deal for you by getting multiple lenders to provide quotes at once. They can also direct you to the right lenders for the type of property you’re looking to finance, which saves even more time.
Second, brokers are experts in commercial real estate investment. Their knowledge and negotiation skills will be essential in helping you choose the best real estate loans for your current situation, evaluate loan terms, and finalize deals. Brokers are skilled negotiators, and they can help you save money by avoiding hidden costs and selecting the best deal structure based on the unique circumstances of your investment. Working with an experienced commercial mortgage broker is a way to eliminate surprises and ensure you can close your deal.
The bottom line is that working with a broker will give you access to a broader network and deeper expertise than you could get on your own, and that helps you get the most value from every investment in a much more efficient manner.
What to Look for When Evaluating Commercial Mortgage Brokers
Once you’ve decided that a broker is the right choice for you, you’ll need to find one that can meet your unique needs. Here are some key qualifications to look for:
Strong relationships with a variety of lenders
Look for a broker with connections to a broad network of lenders with different strengths. For example, consider factors like interest rates, speed of closings, credit thresholds, loan-to-value ratios, property types financed, and amortization terms. You will also want to know whether lenders specialize in a specific type of loan. At Lima One Capital, for example, we specialize in real estate investment loans, which means we understand the unique needs and concerns of investors. We also lend on a more diverse market size and multifamily asset class than many lenders. Our commercial mortgage broker partners know this, which can help their clients find financing faster.
A range of financing options
It’s not wise to jump at the first lender that is willing to provide you with financing. You want to move quickly, but you also want a good deal. That’s why you want a broker who can match you with a loan that aligns with your specific requirements. On some deals, rates may be the most important factor. On others, time to close or prepayment options may be. Commercial brokers understand what’s vital for your deal and can help you find the right solution for your particular situation. Look for a broker that can offer a variety of rates and terms (five-year ARM, fixed rate, construction loans, fix and flip loans, bridge loans, etc.)
Willingness to finance the total amount of capital needed for the project
Some lenders will only underwrite a portion of the total funding you need for the purchase—especially if you’re looking at a value-add project. If you need to finance the full amount, you’ll need to find a lender who can accommodate your loan size. Ask the broker to show you a portfolio of previous residential and commercial real estate loans so you can determine whether terms and structure align with your needs.
Transparency on costs and fees
Make sure the broker breaks down all of the fees and costs you will be expected to pay so you don’t run into any surprises. For example, some loan brokers will charge upfront fees and expect you to pay regardless of results, while others collect payment only after you have received funding. You will also want to know about any third-party fees associated with a deal, including the appraisal, structural reports, legal services, or other associated costs.
Choosing the right commercial mortgage broker is an important step in getting the financing you need for your investment. As you work through the process, ask plenty of questions and vet several different brokers to be sure you find someone you feel comfortable working with over the long term on both residential properties like multifamily and single-family rental portfolios, and also on commercial buildings financing.