Commercial Loans Blog

Fish For Commercial Loans When the Fish Are Schooling

Posted by George Blackburne on Wed, Oct 31, 2012

Those of you who are regular readers of this commercial loans blog know that I have been pounding on you to use every available free minute to expand your snail mail list and email list of referral sources.  Every day you should be adding bankers, commercial real estate brokers, property managers, residential mortgage brokers, residential real estate agents, other lenders, accountants, attorneys, and financial planners to your lists.  You want referrals, not shoppers.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

But that general rule being said, there is a time to put down your mailing lists and simply do deals.  You should drop everything when the fish are schooling. 

Commercial mortgage borrowers apply for commercial loans in spurts, much like having a school of fish wander underneath your fishing boat.  Your phone will be dead for three to five weeks, and then suddenly everybody and their brother will want a commercial real estate loan.  Your phones will light up like a Christmas tree.  Your email box will be flooded with leads.

When commercial mortgage borrowers are schooling, drop everything, and devote 100% of your time to fielding lead calls.  Forget about processing the new deals that you land.  Forget about trying to place some of the older loan applications in your pipeline.  I want you to do nothing but field lead calls.  Sell-sell-sell.  Get those new commercial loan packages headed your way.

Just as suddenly, the school of fish will soon (about six days later) wander away.  Your phones will stop ringing.  New referrals will stop coming in by email.  That is the time to go back to processing all of your loans.

Remember, commercial mortgage borrowers tend to move about the same time, much like the movement of a school of fish.  These investors all tend to apply at the same time.  When that happens, drop everything, and work your lead calls.  Sell-sell-sell!

Click me

Click me
 
Please Click Here ToBuy Commercial Lead
 
Submit Your Loan to 750 CommercialLender
 
Click me
 
Fee Agreement and Fee Collection Course. Just $199.
 
Click me
 
Click me

Topics: schooling

The Most Hilarious Commercial Loan Advertisement EVER!

Posted by George Blackburne on Mon, Oct 29, 2012

The other day I received a marketing email from a commercial mortgage broker trying to drum up business.  The email was a PERFECT example of what NOT to do.  As one of my trainees put it, "This guy is doing everything back-ass-wards!"

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

First let me give you some background.  If you have been reading my recent blog posts about succeeding as a commercial mortgage broker, you will recall that I have been pounding on several consistent themes:

  1. A commercial loan broker must only work on do-able commercial loans.  What is a do-able commercial loan today?  A do-able deal is a small commercial loan (less than $5MM) secured by a standing commercial property.

  2. Goofy loans are the opposite of do-able loans.  Goofy loans include international loans, construction loans, loans on mines, large loans (loans over $5MM), acquistion and development loans (A&D loans), land loans, joint ventures, daisy chains, and any other commercial loans that are not your standard, garden variety, bread-and-butter fare.

  3. If a commercial mortgage broker is not working on a do-able loan, he simply must be working on his marketing.  Commercial mortgage brokers should devote 60% or more of their time to marketing.

  4. The successful commercial mortgage broker knows how to say, "No."  The most valuable asset possessed by a commercial mortgage broker is his time.  He doesn't waste it by working on goofy loans.  Instead, he uses that precious time to call on bankers, commercial realtors, and property managers - either in person, over the phone, by snail mail, or by email - and adds them religiously to his growing email/snail mail list of referral contacts.

Okay, so now let me tell you about this advertising email I received from this commercial mortgage broker.  This guy was actually soliciting for the very same goofy loans that I have trained you to avoid like the plague!  He advertised for -

  1. International loans

  2. Construction loans

  3. Land loans

  4. Acquistion and development loans

  5. Venture capital

  6. Loan on mines!

  7. Loans on special use property, like energy projects.

  8. And his advertisement was directed at other mortgage brokers asking them to bring their commercial loans to him to place.  In other words, this foolish broker was intentionally setting himself up to be a commercial mortgage wholesaler. You never-ever-ever want to work as a commercial mortgage wholesaler.

  9. By tailoring his advertisements to mortgage brokers, he is intentionally creating a daisy chainDaisy chains don't close!

Oh, my goodness!  Talk about being on a path to disappointment and poverty.  Folks, you could work on 10,000 commercial loans from the above list and never close a single one.  This broker was the perfect example of what NOT to do as a commercial mortgage broker.

You should only be working on permanent loans and bridge loans on standing commercial properties in this market.  If you waste your precious time working on any other kind of commercial loan, mark my words.  You.  Will.  Starve.

If this broker's advertisement was not funny enough, the headline of his advertisement was the pièce de résistance.  The headline read, WE ARE IN BUSINESS!  COMCAST MISTAKENLY TURNED OFF OUR PHONE.  I am shocked - shocked I tell you - that this commercial mortgage broker may be having trouble paying his bills.

C'mon, guys.  Don't work on goofy loans.  If you're not working on a loan on a standing commercial property, be working on your marketing.

 

Click me

Submit Your Loan to 750 CommercialLender

Please Click Here ToBuy Commercial Lead

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Click me

Free List of 200   Commercial Lenders

Commercial mortgage training

Click me

Click me

Click me

Topics: Foolish advertisement

Using a Deposit Relationship to Obtain a Commercial Loan

Posted by George Blackburne on Thu, Oct 18, 2012

If your commercial mortgage borrower owns a successful business, you can often use his normal business bank deposits as a lever to obtain for him a new commercial loan.  Let me explain how and why this works.

Good borrowers mean very little to most bankers.  Borrowers are like trolley cars.  There is always another trolley car coming down the track.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

Large depositors, on the other hand, are very important to bankers.  Keep in mind that most commercial banks rarely sell off their loans.  They are portfolio lenders.  In other words, banks keep (almost) all of the loans that they make.

As a result, banks can only make so many loans.  The limiting factor is the size of their deposit base.  The more deposits that a bank enjoys, the more loans it can make, the more loan fees it can earn, and the more interest income it can earn.  When the banks has loaned out all of its deposits, however, the bank has to stop making new loans.  It cannot earn more loan fees and more interest.   

The name of the game in banking is therefore to provide excellent banking service to high-net-worth individuals so they will move their deposits to your bank.  Banking is all about growing the bank's deposit base.  The deal is that the bank trades a short-term commercial real estate loan in return for a long-term deposit relationship.

Now let's suppose your borrower owns a successful widget company, and he needs a commercial real estate loan.  Let's further suppose that he banks with a large money center bank, like Bank of America, and Bank of America has turned him down.  Here is how you may still be able to get him a bank loan:

Go to http://www.maps.yahoo.com and type in the address of his his widget business.  The location of his widget factory will apear on the map.  Then ask Yahoo Maps to plot all of the nearby banks.

Select a nearby small bank.  Its VERY important that the bank be a small one.  The large, money center banks - like JP Morgan Chase, Citigroup, Bank of America, and Wells Fargo Bank - accept deposits from all over the country, and they don't appreciate new, local depositors nearly as much as small banks.

Call the small bank and ask to speak the branch manager.  Don't allow yourself to be redirected to some loan officer.  Insist on speaking directly with the branch manager.

When he comes on the line, explain to the branch manager that you represent the owner of a successful business nearby and that you would like to bring your owner down to the bank to talk about moving his deposits to a new bank in return for a short term commercial real estate loan.  Most branch managers of small banks will practically jump through the phone line in their enthusiasm.

This is how you will finance your successful restaurants and your successful bowling alleys.  The operative word here is successful.  Successful business owners maintain large average daily balances in their business accounts, and their personal savings accounts as often impressive as well.  Bankers want those deposits, so they will trade a short-term business loan for a long-term deposit relationship.

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Put a Link on Your Site To Earn Huge Referral Fees

Submit Your Loan to 750 CommercialLender

Please Click Here ToBuy Commercial Lead

Click me

Click me

Click me

Free List of 200   Commercial Lenders

Click me

Click me

Submit Your Bridge Loan  to Blackburne & Sons

Topics: deposit relationship

How to Fix Your Commercial Loan Business If You're Not Making Money

Posted by George Blackburne on Fri, Oct 12, 2012

If you’re not making any money as a commercial mortgage broker, this lesson should tell you what you’re doing wrong.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

First of all, you are probably working on goofy loans.  By “goofy loans” I mean international loans, loans larger than $10 million, land loans and land development loans, residential subdivision construction loans, commercial construction loans without an SBA takeout, loans on mines, joint ventures, loans involving certificates of deposit, credit-enhanced loans, and loans involved in a daisy chain.  Folks, you could have a pipeline of 10,000 such loans and never close a single one.

I urge you to take a look at your current pipeline of deals and mentally kick out any of the above types of loans.  The few (if any) remaining loans are your only commercial loans that have a snowball’s chance of closing.

In fact, each of the above loans is worse than having no commercial loans at all in your pipeline.  All they will do is waste time that should be spent finding permanent loans on standing commercial properties.

The most valuable asset you own as a commercial mortgage broker is your time.  You must learn how to say “no” twenty times per day.

What kinds of commercial loans should you be working on?  Small loans on standing commercial properties, ideally less than $2 million, multifamily loans, SBA loans, USDA Business and Industry loans, loans to refinance balloon payments, refinances of under-leveraged commercial buildings to cash-needy borrowers, discounted payoff’s (DPO’s), loans to purchase REO’s, and possibly commercial construction loans with an SBA or USDA takeout loan.

If you remember nothing else from this lesson, just remember that small commercial loans close I would rather have just one $600,000 commercial loan than ten commercial loans of over $6 million each.  It has been my experience that large commercial loans only close when you don’t need the commission.  Remember also that the larger the loan, the more bank executives who have to review it before it gets approved.  Any one of them could have a pet peeve.

The bank loan officers who handle the really large commercial loans are very cliquish.  They will usually just kiss off your first half-dozen deals because they want you to go away.   You’re not one of the good ‘ole boys.  Sometimes it feels like a new broker has to sacrifice five good loans on the altar of a new lender before the lender will even start to pay attention to him.

The most important lesson I have ever learned after 32 years in commercial real estate finance is this – commercial lenders close loans for their friends.  You need to become good friends with a bank loan officer before he will close a large commercial loan for you.

Instead of working on goofy loans, you should be spending 60% of your time on marketing for do-able commercial loans.

The way to market for commercial loans is build a huge snail-mail list and email list of wealthy real estate investors and referral sources.  The best referral sources are bankers, commercial real estate brokers, property managers, residential mortgage brokers, other commercial lenders (hard money brokers, credit unions, etc.), attorneys, CPA’s, and insurance agents.

You should focus your marketing on local referral sources, so you get local deals on local properties that you can personally inspect.  It’s easy to pinpoint nearby banks, realtors, property managers and such by plotting your office on Yahoo Maps and then asking the map program to plot the nearest banks, etc.  You should then solicit these same guys using funny and interesting newsletters.

When quoting a commercial real estate loan, be sure to quote a very specific rate and term, even if you don’t know which bank will eventually fund your deal.  Borrowers want to hear specificity.  The good news is that most banks offer similar programs.  If you’re slightly off, simply correct yourself as soon as you discover it.

Try to never bring up the subject of appraisals and toxic reports.  You’ll lose the borrowers to sticker shock.

The wise commercial mortgage broker will personally inspect every property he tries to finance.  If the property is too far away to personally inspect, learn how to use demographic websites and neighborhood crime websites to identify low- income, high-drug-use, and high-crime neighborhoods.

Always include a picture with your commercial loan package.  Much depends on a handsome picture taken on sunny day.  You should also learn how to use Google Earth to take a bird’s eye picture of the neighborhood surrounding your property.

It’s no longer necessary to send loan packages by Fed Ex or snail mail.  Instead, learn how to turn a short Executive Loan Summary into a PDF that you can send by email.

Finding commercial lenders is easy and straight forward using C-Loans.com, Yahoo Maps, and the FDIC’s own website.  Just be sure to match the size of your loan to the size of the bank.  And don’t forget about credit unions.  They often have the lowest rates.

After submitting your commercial loan to a banker, be sure to call the banker to “confirm receipt of the loan package.”  The call will serve as a gentle kick in the tush to actually read the package.

When you approach a lender of the phone, the first words out of your mouth should be, “Hey Bill, I’d like to run a commercial loan by you.  Did I catch you at a good time?  If not, I’ll be happy to call back later.”

A lot depends on your loan officer.  Commercial real estate lending is an advocacy process, where your loan officer has to fight for your deal before Loan Committee.  If your loan officer is a wimp, find a different one.

How do you spot a hot commercial loan officer?  Often the receptionist or the loan department secretary will share with you the name of their hottest commercial loan officer.  Look for younger males on commission or at least one on a salary-plus-bonus compensation plan.  The older guys on straight commission often couldn’t give a flip.  If one commercial loan officer blows you off, try another one at the same bank the following day.

Be careful of advance fee scammers posing as commercial lenders.  Distrust immediately any “lender” who claims he makes international loans, that he represents hedge funds, or is a merchant banker.  I promise you that they are either rookies or frauds.

Learn to spot hot commercial loan leads – properties with balloon payments coming due, deals where the lender has offered a discounted pay off, low LTV deals to companies that are losing money and need to pull dough out of their properties, free-and-clear commercial properties that have just been inherited by the heirs, or purchase-money deals where the buyer is doing an exchange.

Never talk about a debt service coverage ratio with a lender without sharing what loan constant you used to compute the ratio.

Always get a signed fee agreement with your borrower, but don’t ask for it too soon.  Work him nearly to death fetching you documents first so that he has a stake in the process.

When requesting the documents for your loan package, never ask for a complete package.  No-no-no!  The magnitude of the work in front of him will send him running for the hills.  Instead, bleed the documents out of him slowly, giving him lots of positive encouragement after receiving each batch.

The wise commercial mortgage broker will work out of his house.  Your borrowers won’t mind.  And fire all of your staff.  You don’t need them.  Keep your day job as you build up your pipeline – be it originating home loans or driving cab.  This business takes a while to build.

Whatever you do, never try to be a commercial mortgage wholesaler.  Your brokers will only bring you their crumby deals that they couldn’t place elsewhere.  You’ll waste countless hours and never close a deal.

There are lots of ways to close commercial loans.  The seller could carry back a second mortgage on another property owned by your buyer.  Perhaps the holder of a ballooning loan could subordinate part of his loan for a partial pay-down.  Your lender could blanket other collateral.  You could bring in a strong personal guarantor.  Your borrower could sell off assets and bring cash to the closing.  You can also very often convince a bank to take a discounted pay-off.

Why even bother becoming a commercial mortgage broker?  Because commercial properties are owned by rich folks!  There is no better way to meet high-net-worth investors than to be a commercial mortgage broker.

Once you meet these rich folks, you can finance their other properties, sell them other properties, syndicate them into groups to buy larger properties, or even someday sell them first trust deeds.  For example, I own a $50 million hard money shop, and almost every one of my early investors was a former borrower.

Be smart.  Read this summary over and over again until these lessons truly sink in.  Good luck.  I hope this helps.

George Blackburne III
Plymouth, Indiana
October 12, 2012

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Please Click Here ToBuy Commercial Lead

Put a Link on Your Site To Earn Huge Referral Fees

Free List of 200   Commercial Lenders

Click me

Click me

Click me

Click me

Click me

Topics: summary

Good Commercial Loan Brokers Issue Very Specific Loan Quotes

Posted by George Blackburne on Thu, Oct 11, 2012

Let me set the stage here.  You’re a commercial mortgage broker.  A potential borrower calls his own bank asking for a commercial real estate loan, but the bank is forced to turn him down.  Fortunately, the kindly banker recommends your commercial mortgage company and suggests to the borrower that he call you.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

So your phone rings, and the borrower tells you that he needs a commercial real estate loan.  You ask for the details, and he share them with you.  He says, “I need a $700,000 refinance of my industrial building in Chicago, Illinois.”

Now your commercial loan office (if you are smart, a bedroom in your home) is located 200 miles away in Minneapolis, Minnesota; however, you are confident that you can find a lender to make his loan.

Question:  How do you quote the loan?

Now you have several commercial banks that have closed commercial real estate loans for you in Minnesota, and they usually quote you between 4.5% to 4.75%, 1 point, 25 years amortized, 10 years due, with one rate readjustment (based on a spread over Treasuries) after five years, and a prepayment penalty of 3% in year one, 2% in year two, and 1% thereafter.

George’s Answer:

As a commercial mortgage broker, you should quote your borrower a very specific rate and term, even though you might not yet have a specific lender picked out for the deal.

Now I do not want you to lie and issue some lowball quote for a loan that you suspect would be impossible to deliver.  No-no-no!

I just want you to make a detailed, specific quote based on the knowledge that most banks throughout the country offer commercial real estate loans at roughly the same rates and terms.  Therefore, if your local banks in Minnesota are quoting 4.5% to 4.75% for a loan that is amortized over 25 years and due in 10 years, you can be reasonably sure that the banks in Chicago will be quoting pretty much the same terms.

So you might quote the borrower:  4.625%, 2 points (one of those two points is your fee), 25 years amortized, 10 years due, with a rate readjustment after five years, and a prepayment penalty of 3% in year one, 2% in year two, and 1% thereafter.

“Why is it so important that my commercial loan quote be so precise and exact?  Why can’t I just give a range?”

When an experienced commercial property investor calls his bank, the bank loan officer doesn’t generally give him a loan quote with a very wide variance.   The banker doesn’t quote him, “You rate will be between 4.5% and 12%.”  No, the banker is usually far more precise.  He might say that your rate will be between 4.5% and 4.75%, but that’s about as much variance as he typically puts in the quote.

If you give your borrower a quote of between 4.5% and 12%, the borrower will know that you are just a broker.  You don’t want to come across as “just a broker”.  I don’t want you to lie, and if the borrower asks you directly if you are just a broker, you tell him the truth.

Nevertheless, the wise commercial loan salesman will come across confidently and specifically, as if he has been representing that bank in Chicago for a decade.  (Remember, at this point we don’t know what bank in Chicago might make this loan; but we do know that most banks across the country quote their commercial real estate loans at roughly the same rates and terms.)

“But George, what if I am wrong?  What if I can’t deliver that exact quote?”

Don’t worry about it.  All you can do is quote the most likely rate and terms for which the borrower is likely to qualify.  You are not issuing a low-ball quote.  You are issuing a reasonable, market rate quote.

However, good ethics require that you notify the borrower the moment you learn that you will not be able to deliver the quoted rate.

“Bob, I’m just calling today to let you know that the rate is more likely going to be 5.25% than 4.675%.  The reason why is that this area of Chicago isn’t the greatest.  Do you still want to continue?” 

By this time your borrower will have spent too many hours with you providing documents to start all over.  You will rarely lose him

Now I want to be crystal clear that you must not engage in bait-and-switching.  No-no-no!  If banks in Minnesota are quoting you 5.5% for commercial real estate loans, you must not quote your borrower a 4.625% rate for his Chicago deal.  That would be immoral and illegal.

I’m just saying that commercial banks across the country quote very similar programs on commercial real estate loans, so its reasonable – and a good sales practice – to issue very specific commercial loan quotes, even if you do not have a specific bank in mind when you make the quote.

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Submit Your Loan to 750 CommercialLender

Please Click Here ToBuy Commercial Lead

Click me

Free List of 200   Commercial Lenders

Click me

Click me

Submit Your Bridge Loan  to Blackburne & Sons

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Topics: Quoting Commercial Loans

Commercial Loan Brokers Should Never Talk About T and A

Posted by George Blackburne on Wed, Oct 10, 2012

Commercial loan brokers should never talk about T and A because the use of these words will almost always open up a can of worms that will kill your deal.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

Now I am not talking about ta-ta’s and booty.  The t-word I am talking about here is toxic report.  The a-word is appraisal The wise commercial mortgage broker avoids the t-word and the a-word like the plague.

Why?  If you’re the first commercial loan broker who has to tell the borrower that he will eventually have to pay $2,500 (to $3,500) for a toxic report and $3,000 (to $5,000) for an appraisal, I guarantee that you will lose the deal.

The borrower is going to be horrified.  Oh my goodness!  He won’t believe you when you tell him that such third party report fees are quite normal in commercial mortgage finance.  He will feel compelled to shop to other lenders in hopes of finding a bank that will do such reports in-house.  (Good luck with that!)

After three or four other banks and commercial mortgage brokers tell him the same thing, he will finally accept the fact that he is going to have to shell out big bucks up-front for the third party reports.  But that won’t help you a bit.  You will have already lost the deal.

Therefore, be smart.  Never talk about T and A.  Don’t even use the words.  If they slip out of your mouth, know that you have just killed your own deal.  Go wash your mouth out with soap.

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Please Click Here ToBuy Commercial Lead

Click me

Commercial mortgage training

Click me

Click me

Free List of 200   Commercial Lenders

Click me

Click me

Click me

Submit Your Loan to 750 CommercialLender

Topics: T and A

The Pooh-Pooh Soup Story for Commercial Loan Brokers

Posted by George Blackburne on Mon, Oct 8, 2012

A commercial mortgage broker is a salesperson, and convincing the borrower to send in his initial commercial loan package is arguably the single most important sales step in the commercial loan business.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

In prior lessons on how to rope in a commercial loan package, I laid out for you certain rules:

  1. Make sure that your initial list of requested commercial loan documents is short and very easy to gather.  Right now you’re fighting inertia.  The borrower is at rest, and a body at rest tends to stay at rest.

  2. Typically the first set of documents will be the income and expenses on the property, plus some color pictures.

  3. Be careful when asking for color pictures.  If the commercial property owner is older, he may not know how to send pictures by email.  If he doesn’t, and if he doesn’t have a property manager or a child who can send in the pictures for him, you should quickly back off from asking for any pictures.

  4. You should collect your commercial loan documents in a series of small batches, making sure that each step is relatively easy.  Once the borrower has sent in his initial package, inertia is now on your side.  A body in motion tends to stay in motion.

  5. Never ask for a complete package!  Remember, out of the 1,000+ times I have asked for a complete commercial loan package, I have received exactly zero packages.

  6. Never send a commercial mortgage borrower a list of all of the loan documents that you will eventually need for your package.  The list is far too long and intimidating.  Your borrower will head for the hills.

  7. Never orally give your borrower a list of all of the loan documents that you will eventually need.  You’ll scare him away 100% of the time.

  8. Don’t combine any document-gathering steps in order to “save time.”  All you will end up doing is saving yourself the time and trouble of depositing a commission check.  Instead, make sure that each step is easy and short.

Now let’s talk about Pooh-Pooh Soup.  My lovely wife, Cisca, and I occasionally go out to French restaurants.  French restaurants are expensive, the waiters are often rude, and the portions are tiny; but the food is usually excellent. 

There is common characteristic of most French restaurants that invariably sets Cisca and me to giggling.  No matter what you order, the waiter always tells you that you have made a great choice and that the food is going to be excellent.

For example, if you order the duck a la orange, the waiter will almost always say something like , “Ah, good choice!  The duck a la orange is magnifique.”  If you order the Crepes Suzette, the waiter will say something like, “Good choice!  The Crepes Suzette are delicious!”

Therefore I have often wondered what would happen if I ordered the pooh-pooh soup?  And yes, folks, the pooh-pooh soup is exactly what you feared – a couple of short brown logs in a delicate broth.   Eeuuuu, yuck!  Would the French waiter say something like, “Ah, the pooh-pooh soup is delicious!

But as commercial mortgage brokers, we can all learn an important lesson from that French waiter.  When he is telling us that the pooh-pooh soup is delicious, that French waiter is giving us positive feedback.

Commercial mortgage borrowers need a lot of positive feedback as they slave away over a copy machine making copies of their voluminous tax returns and thick leases.  They constantly need to be reassured that they are not wasting their time.

The whole point of the Pooh-Pooh Soup Story is this:

In order to eventually compile a 200+ page commercial loan package, you need to gather the documents just a few pages at a time and then give the borrower lots of reassurance each time that his loan still looks good.

For example, after you receive the income and expenses on the property and the color pictures, you should call the borrower and say:  “Dr. Smith, I analyzed the cash flow of your property, and the numbers look very good.”  (The pooh-pooh soup is delicious!)  Now all I need is an old personal financial statement and two years’ personal tax returns.”

“Dr. Smith, I looked at your personal financial statement and your tax returns, and the numbers looked quite good.  (The pooh-pooh soup is delicious!)  Now all I need is copies of the leases.”

And so on.  Remember, make each set of documents just a short list.  Never combine steps “to save time”.  And be sure to give your commercial mortgage borrower lots of positive reinforcement.  The pooh-pooh soup is dee-licious!

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Please Click Here ToBuy Commercial Lead

Click me

Free List of 200   Commercial Lenders

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Submit Your Loan to 750 CommercialLender

Click me

Click me

 

 

Topics: Pooh-Pooh Soup

What Commercial Loan Documents You Will Need ... and When

Posted by George Blackburne on Fri, Oct 5, 2012

In my last lesson I pointed out that a commercial loan broker has to be very, very careful when he requests the documents that will go into his loan package.  If he asks for too many documents, the borrower will want to shop around.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

If he asks for the wrong documents, like an updated financial statement, the commercial loan broker will probably lose the deal to a competitor who will pop up during six long weeks it takes for the borrower’s accountant to prepare the updated financial statement.

And if the commercial mortgage broker makes the horrible mistake of describing all of the documents that will eventually go into the commercial loan package, the deal is most sincerely dead.  Remember, never-ever send or verbally give to your commercial mortgage borrower a list of all of the documents that eventually will go into a complete commercial loan package.  This list is so huge and so scary that your borrower will run for the hills.

Instead, you should just ask for a few loan documents initially.  You will collect the rest of the documents slowly over time, as the borrower slowly becomes wedded to the idea that you are the broker that he has chosen to fund his deal.  (If you and I were chatting over a beer, I would put this differently.  You will wait to collect the bulk of your loan documents until the hook is firmly set in your borrower’s mouth.  Don’t jerk the hook out of his mouth by asking for too many documents too soon.  You’ll just scare the fish away.)

So what documents should you gather first and when should you ask for them?  Here are some general rules:

  1. You should collect your commercial loan documents in a series of small batches.  Make each step easy!

  2. After receiving and reviewing each batch of loan documents, call your borrower and tell him that his commercial loan application looks good.  In other words, give him some positive feedback, so he knows that he is not wasting his time.  I’ll cover this important step in another lesson called the Pooh-Pooh Soup Story.

  3. Ask for initially just the income and expenses on the property and some color pictures.  I’ll cover this important first step in far more detail below.

  4. Be very careful when ask for color pictures of the property.  We want the first step to be very easy in order to get inertia on our side.  (Inertia:  A body at rest tends to stay at rest.  A body in motion tends to stay in motion).  For most middle-aged folks, it’s pretty easy for them to snap some pictures using a smart phone and to email them to you.  Many commercial properties, however, are owned by elderly investors who don’t know how to use email to forward pictures.  You might ask your borrower if he knows how to take pictures and to send them by email.  If he doesn’t, you might ask him if he has a property manager or a younger relative who could do this for him.

  5. The second batch of documents you will request is an old (!!) financial statement or an old (!!) loan application, plus his last two years’ personal tax returns.  If you ask for an updated loan application or an updated financial statement, you will probably lose the deal.

  6. Most borrowers do not own a copier with an auto-feeder, so copying the tax returns is often an agonizingly slow, one-by-one, process.  The borrower will therefore only want to do this once.  This is why I often say, “The first commercial mortgage broker to get the borrower’s tax returns usually wins the deal.”

  7. After receiving these documents, call your borrower and give him some positive feedback.  (The Pooh-Pooh Soup Story.)

  8. Next – but do NOT combine steps – ask for copies of all of the commercial leases.

  9. At a later date you will ask for other documents, including a financial statement on the LLC that owns the property, two years’ tax returns on the LLC, the Statement of Organization on the LLC, and the Operating Agreement on the LLC.  However, I recommend that you do NOT ask for these file-filler documents until your lender has issued a term sheet and the borrower has signed it.

So what documents make up the income and expenses on the property (see step 3 above)?  It depends on the type of property:

Multifamily and self-storage properties:

  1. Current rent roll.

  2. Last year’s actual operating expenses.

Office, Retail, and Industrial Properties:

  1. Schedule of Leases (one page summary of the tenants, the square footage of each unit, the rents, and lease expiration dates)

  2. Last year’s actual operating expenses.

Hospitality (Hotels and Motels) and Health Care Properties:

  1. Last TWO years’ actual Profit & Loss Statement (P&L)

  2. Any year-to-date P&L Statement that is ALREADY available.  If it’s late in the year, perhaps a P&L Statement on the first quarter or on the first two quarters might have already been prepared by the accountant.  Do NOT ask for an updated P&L.  No-no-no!  You’ll lose the deal while you’re waiting for the accountant to prepare it.

“But George, if you bleed the loan documents out of the borrower this slowly, it will take four months to close a commercial loan.”

Yup.  That’s right.  The situation reminds me of that age-old joke about the old bull and the young bull who trot up to the top of a hill and see a whole herd of beautiful, available heifers grazing in the valley below.  The young bull turns to the old bull and says, “Hey pops, let’s run down and kiss one of those cows.”  To which the old bull replies, “Son, let’s walk down and kiss them all.”

Folks, if you try to rush the document collection process, you’ll scare away 49 out of every 50 commercial mortgage borrowers.  Why not reel in the necessary commercial loan documents slowly and close them all?

Commercial mortgage training

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Click me

Please Click Here ToBuy Commercial Lead

Click me

Free List of 200   Commercial Lenders

Click me

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Topics: Required documents

Requesting Commercial Loan Documents

Posted by George Blackburne on Thu, Oct 4, 2012

One of the biggest mistakes commonly made by rookie commercial mortgage brokers is to request far too many loan documents during the first phone call.  Such a mistake is almost guaranteed to kill your commercial loan deal.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

These rookie commercial mortgage brokers are no doubt thinking to themselves, “The sooner I gather a complete commercial loan package, the sooner I can submit the deal and get paid.”

The problem with this approach is that most commercial mortgage borrowers are wealthy and busy running their own businesses.  They are not anxious to devote long hours assembling a huge commercial loan package for you when they are not even sure that you will be able to perform.

If you ask for a huge number of loan documents (financial statements, tax returns, leases, LLC operating agreements, etc.), the borrower is likely to think to himself, “Gee, that’s an awful lot of work.  I wonder if someone else out there has an easier process.  I think I’ll make a couple of more calls.”

Therefore it has been my observation that –

The commercial mortgage broker who asks for the least number of loan documents usually gets the deal.

There are other dangers to asking for a complete loan package.  Invariably your commercial loan borrower will not be able to gather every document immediately.  Maybe he’s waiting for a lease extension to be signed.  Maybe he’s waiting for his accountant to complete the latest financial statements on his company.

Since your borrower will not be able to send in a complete loan package, he might not send in anything at all.  He’s thinking to himself, “I’ll just hold off sending in the package until I have everything.”

In the meantime, stuff happens.  A nearby banker might stop by your borrower’s office for his annual business development (schmoozing) session, at which time the banker steals your commercial deal.  Alternatively, your commercial mortgage borrower might mention to his real estate broker-buddy that he’s looking for a commercial loan.  Soon the lead will be rushed to a competing commercial mortgage company, and they could steal your deal.  Given time, there is a very high chance (80%+) that you will lose your commercial loan applicant.

The wise commercial mortgage broker will therefore do everything he can to encourage his borrower to send in some sort of initial package right away.   The package does not have to be complete.  It is just critical that you not allow any delay.

And whatever you do, never-ever-EVER send your borrower a complete list of the documentation that he will eventually be asked to provide.  No-no-no!  Such a description of a complete package is so intimidating and discouraging that it is 100% guaranteed to send your borrower running towards the hills.

In fact, in my 33 years in the commercial mortgage business –

I have lost every single commercial loan app where I sent the borrower a list of the items required in a complete package. 

One hundred percent.  A perfect score.  Because I’m stupid, I tried it over 1,000 times.  Out of those 1,000+ times, I received exactly zero loan packages.

Don’t even do it over the phone.  If you find yourself giving your commercial mortgage borrower over the phone a complete list of the documents that you will eventually need, you have just killed your deal.  Bang!  You just shot a bullet into your deal’s head.  You just stuck an ice pick through its eye.  You just dropped a house on your deal.  Your commercial mortgage deal – as the munchkin’s coroner sang in the Wizard of Oz – is really most sincerely dead.

So never-ever send or verbally give your borrower a complete list of the loan documents that you will eventually need.  The list is way too long and scary.

So how do we request loan documents?  We’ll cover that in an upcoming lesson.

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Click me

Please Click Here ToBuy Commercial Lead

Click me

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Free List of 200   Commercial Lenders

Topics: commercial loan documents

Become the Doctor No of Commercial Mortgage Finance

Posted by George Blackburne on Tue, Oct 2, 2012

Queue the music theme to the James Bond movie series.  The silhouette of James Bond is now walking across the screen.  Folks, I want you to become the new “Doctor No” of commercial real estate finance.  (The original Doctor No was killed off in the second James Bond movie.)  I want you to learn how to say no.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

There is a common theme to my commercial mortgage finance training.  As a commercial mortgage broker, you simply must learn to say, “No,” to those goofy commercial loan requests that will waste your time but will never close. 

Rather than taking a one-in-ten-thousand chance on a goofy commercial loan application, you need to preserve every available working minute and devote it to marketing for do-able commercial loans.

The following words drive me absolutely bonkers:  “Well, I didn’t have any other commercial loan packages going, so I thought I might try to place this (goofy) one.”  Arghhh!  No-no-no!

You could have been using that same time to add new referral sources to your mailing list and to your email list.  You could have been calling on bankers.  You could have been making a few calls to your local realty agent buddies.  You could have been writing up your latest fun newsletter.

How many wealthy income property investors did you add to your newsletter list this week?  You didn’t have time?  Hmmmmm.

So let’s practice this today together:

“Hey, George, do you know anyone who would finance a golf course in Mexico?”

Sorry, Steve, but the answer is no.  If an American bank were to make a loan in Mexico, the Mexican government would slap a 30% withholding tax on its interest income.  If the nearby Mexican banks won’t do the deal, it will never get done.

“Hey, George, I have a client who needs a $10 million loan to buy a commercial building.  Do you know someone who could finance this deal?”

What’s his net worth, Bob?  Just $1.2 million, huh?  How much is he putting down?  He’s trying to get away with just 7% down?  I’m sorry, Bob, but the answer is no.  Your buyer isn’t strong enough to qualify for a $10 million loan.  He would need a net worth of pretty close to $10 million to qualify for a $10 million loan.

“Hey, George, do you have any construction lenders who would finance the construction of a new $7 million spec office building?”

Gee, Ralph, very few banks will finance new commercial construction, unless the builder is prepared to cover at least 35% of the total project cost.  Does your builder have at least $2.45 million (35% of a total project cost of $7 million) to contribute to the project?  No?  Then I’m sorry but my answer is no.

“Hey, George, do you know anyone who will finance a gold mine?  Our expert says there is $100 trillion in gold reserves in this mine.”

No.  I have never known anyone to close a mine deal in my 33 years in this business.

“Hey, George, do you know anyone who will make a $4 million acquisition and development loan on a residential subdivision in the Central Valley of California (the worst housing market in the country)?”

If you were asking for San Antonio, Texas; Austin, Texas; or Washington, DC, the answer would have been maybe.  But John, unless you’re talking about the absolute hottest housing markets in the country, no one is making subdivision A&D loans right now.   There are enough finished but unsold residential lots in America to last for another twelve years.

“Hey, George, I know a guy who knows a guy who needs a …”

Sorry, Jack, but the answer is already no.  Daisy chains don’t close.

“Gee, George, what kind of commercial loan are you looking for?”

I’m looking for permanent loans on standing commercial properties only.  A standing commercial property is one that is already built.  These are the only type of commercial real estate loans that are actually closing today.

And the smaller the loan, the greater the chance that the loan will actually close.  I’ll take one loan of $600,000 over ten loans of $6 million any day.  Unlike a lot of newbie commercial mortgage brokers, I actually want to close deals and get fed.

Click me

Fee Agreement and Fee Collection Course. Just $199.

Click me

Please Click Here ToBuy Commercial Lead

Submit Your Loan to 750 CommercialLender

Click me

Click me

Click me

Free List of 200   Commercial Lenders

Click me

Click me

Click me

Commercial mortgage training

Topics: Saying no

New Commercial Mortgage Brokers Should Keep Their Day Job

Posted by George Blackburne on Mon, Oct 1, 2012

Success in the commercial mortgage brokerage business does not usually happen overnight.  It could be seven to eight months before you finally start to hit your stride.  Here’s why:

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

  1. Commercial banks are the lenders closing most of the new commercial real estate loans today, and the average bank takes four months to close a commercial loan.  Yeah, yeah … the bank loan officer will tell you that the process only takes about 60 days … but he’s flat-out lying to you.  A narrative income-property appraisal alone takes about 60 days, and most commercial lenders don’t even order the appraisal until 30 to 45 days into the process.

  2. Traditional advertising – like direct mail, magazine advertising, radio advertising, and TV advertising – simply does not work in the commercial mortgage business.  You are therefore going to have to build yourself a network of 1,000+ referral sources.  These referral sources won’t start producing a lot of leads for you for at least six weeks, assuming you hit them with a newsletter every ten days for six weeks.  You’ll surely build a relationship with these contacts, but these relationships take a little time.

  3. Therefore, even if you hit the ground running, it’s likely to take at least six weeks plus another four months before the first of your commercial loans start to close.

The wise newbie will therefore keep his day job as he starts to build his mailing list and email list of referral sources.  If you are teaching school or driving a cab, keep at it until your pipeline finally starts to deliver.  If you are currently working as a residential mortgage broker, keep at it!   With interest rates so low, this is a good time to be refinancing homes.

Since it takes so long to close your very first commercial loan, why should you even bother to learn commercial real estate finance?  There is a superb reason, and I want you to read this answer at least three times:

Wealthy investors own the big commercial buildings you see around town, and there is no better way to meet those wealthy investors than to be a commercial mortgage broker.

Please re-read the above paragraph two more times and permanently engrain this concept into your head.

Once you have met and worked hard for a wealthy investor – you don’t even have to close a loan for him – you can make all kinds of money from this relationship.

You can sell this wealthy investor rental homes or commercial REO’s (properties foreclosed upon by a bank).  You can manage a few properties for him.  You can convince him to buy hard money mortgages from you.  You can convince him to invest in a private money mortgage fund that you run.  You can syndicate your wealthy investors to buy huge commercial properties.   You can even partner with these wealthy investors if they have a great idea of their own.

So why do you want to become a commercial mortgage broker?  Answer:  Because there is no easier way to meet wealthy investors than to become a commercial mortgage broker.

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199. 

Please Click Here ToBuy Commercial Lead

Click me

Submit Your Loan to 750 CommercialLender

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Free List of 200   Commercial Lenders

Click me

Click me

Click me

Topics: day job

Never Try to Be a Commercial Mortgage Wholesaler

Posted by George Blackburne on Mon, Oct 1, 2012

In the mortgage business, a wholesaler is lender or broker that accepts deals almost exclusively from mortgage brokers.  In contrast, a retailer is a lender or broker that only accepts loan applications directly from the borrower or real estate agents.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

Never try to be a commercial mortgage wholesaler.  It simply doesn’t work.

The concept sounds like it should work.  A mortgage broker becomes an expert at placing commercial mortgage loans.  He sets up a network of 500 residential mortgage brokers to bird-dog for him.  The residential mortgage brokers bring him all of their commercial loans, and then the commercial mortgage expert uses his expertise to place these commercial loans.  The residential mortgage broker adds a point to the deal, and the commercial mortgage expert adds a point for himself. 

This should work, right?  Unfortunately it doesn’t.  But why?

  1. Even rookie mortgage brokers quickly learn that daisy chains don’t close.

  2. Therefore your residential bird-dogs will take their easy and do-able commercial loans directly to some bank.

  3. Your residential bird-dogs will only bring you their commercial mortgage deals that have been turned down by every direct commercial lender that they know.  In other words, if you try to work as a commercial mortgage wholesaler, the only commercial loan applications that you’ll ever receive will be the dregs – deals that have already been turned down by a half-dozen commercial lenders.

  4. Worse yet, your residential bird-dogs won’t tell you that the deal has already been turned down by six other lenders.  They won’t tell you that the deal has a toxic contamination problem, a vacancy problem, a structural engineering problem, or a crumby-trashy-druggie neighborhood problem.  They won’t tell you because they’re hoping that your lender won’t find out.  In the process, you’ll spend countless hours working on dozens of commercial loans that never had a chance in Hades of ever closing.

  5. Working as a commercial mortgage wholesaler also guarantees that every deal you work on will have a daisy chain problem – lousy communication, bald-faced lies by the intervening brokers, and excessive loan fees (packing).  Packed deals almost never close.

So be smart.  Never try to work as a commercial mortgage wholesaler.

Now this does NOT mean that you should never work with other mortgage brokers.  Residential mortgage brokers often make great bird-dogs.

However, you must ONLY work with residential mortgage brokers on a name-and-number referral basis.

Their job is to call you up or email you the name and number of a potential commercial mortgage borrower in exchange for a 10% or 20% referral fee.  They must not try to work as your loan agent or as a commercial mortgage broker 

If your residential bird-dog starts trying to play commercial mortgage broker, you have to cut him off.   Really?

Yes!  The reason why is because he will never again bring you an easy, do-able commercial loan again, like the purchase of a small apartment building or the refinance of a ballooning loan on a standing commercial property.  He’s already taken those loans to his own stable of banks.

Instead, your ambitious bird-dog will only bring you the deals that he cannot place himself - like a goofy $15 million land development deal, a loan on a gold mine, or some pipe-dream commercial construction loan to some undercapitalized developer with poor credit.  You have to cut him off.

So don’t forget – never try to be a commercial mortgage wholesaler.  You will waste countess hours pouring over crumby, hard-to-understand loan packages, and you will never close a single loan.

Commercial mortgage training

Click me

Click me

Fee Agreement and Fee Collection Course. Just $199.

Please Click Here ToBuy Commercial Lead

Free List of 200   Commercial Lenders

Click me

Click me

Click me

Submit Your Loan to 750 CommercialLender

Put a Link on Your Site To Earn Huge Referral Fees

Click me

Click me

Click me

Topics: commercial mortgage wholesaler