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.
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.