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.
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?
- Even rookie mortgage brokers quickly learn that daisy chains don’t close.
- Therefore your residential bird-dogs will take their easy and do-able commercial loans directly to some bank.
- 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.
- 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.
- 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.