I recently had the very good fortune of attending a presentation by Fannie Mae's chief economist, David Berson. During Mr. Berson's presentation, he made the startling prediction that the refinance market would drop by more than 75 percent this year, followed by another 40 percent drop in 2005! Considering the history of remarkably accurate predictions coming from his department, I took these words to heart. I hope you do, as well. But, most of us don't need a brilliant economist to tell us something we can already see reflected in our paychecks. The bottom line is that the 30-year-rate and term-rate reduction days are behind us, now. However, the predictions are that there will still be almost $1 trillion in funded refinance loans in 2004. If these aren't the traditional refis, what are they, and where can we go to find them?
I want to introduce you to a loan that I know, from personal experience, sells in every rate environment, and has a list of potential borrowers available to you, as close as your front doorstep. I call it the "vacancy payment relief loan."
Over the course of your lifetime, can you remember when it would have made a significant difference if you'd been able to send your mortgage company or landlord a lower monthly payment or a reduced amount of rent? Now, think about the situation that real estate investors find themselves in on a regular basis. Who makes the mortgage payment for them when the property is vacant and no rent is coming in? Can't they just call their lender and explain that since the house isn't rented out, right now, and no money is coming in, that the investors will be sending them $500 less this month? Won't the lender be understanding of their plight and be ready and willing to help during his customers' time of need? The odds of that are only slightly better than winning the lottery, and the average person is seven times more likely to be struck by lightning than to win the lottery. In other words, there's no chance.
Just a month or two of mortgage payments on a vacant property can eat up a year or more of positive cash flow. And positive cash flow is the single-most cited benefit of owning rental properties. But, you can help. You can introduce the real estate investors in your marketplace to a payment option ARM like the 12 MAT ARM offered by IndyMac Bank and other lenders. These loans offer up to three different payment options each month, including an option that, in some cases, can be as little as half their current payment and interest, tax and insurance payment. In addition, fully indexed rates on these loans are as low as three or four percent. So, not only will you be providing your clients with a way to maintain positive cash flow during vacancy, in most cases, you'll actually be reducing their rate, even if they've recently refinanced!
Finding leads for this particular marketing strategy is as easy as picking up the local paper. All you have to do is ask yourself this question: If your home was for rent, whose phone number would you list in the "Homes for Rent" section? It'd be your phone number, right? In short, you've just discovered a never-ending source of leads. These leads are the direct phone numbers of real estate investors whose rental properties are generating exactly zero income. In most cases, you won't have to explain the benefits twice. Experienced investors get it. They'll already be thinking about how many new investment properties they can add to their portfolio due to the increased cash flow.
After spending hundreds of hours on nights and weekends, calling these leads, during my 15-year retail career, I did notice one very nice profitable trend--on average, one out of every two people I spoke to owned more than one rental property. More often than not, I would get two or three loans from each borrower, rather than just one. Often, that would include their primary residence, as well.
To sell your customers on vacancy payment relief loans, you'll need to have a solid understanding of the product, how it works, its advantages and its disadvantages. More importantly, you'll have to explain the product to your customers in a way that they can easily understand. What you can gain is access to a captive market, a never-ending source of free leads, an opportunity to present a bona fide solution to your customers and the distinct possibility of several loans from a single source. Now, that's thinking outside the box!
Blair Hanson is a national sales trainer with IndyMac Bank and the author of "The Complete Step-by-Step Guide to Creating Long-Term Real Estate Agent Relationships." He can be reached at (202) 295-6371 or e-mail [email protected].