It’s no secret … residential brokers across the country are returning to the commercial market as they look for new ways to diversify their business. Many of these novice commercial brokers focus on closing multifamily deals, and for good reason. Multifamily properties (considered commercial if they contain five or more units) are most similar to the residential business they’re used to.
If you’ve decided to take on commercial loans, but don’t know where to start, small-balance multifamily deals could be the perfect introduction. Here are three reasons why:
1. You’re familiar with the property type
The only difference between a residential and commercial multifamily deal is the property’s unit number. If you’ve closed a residential multifamily deal with one to four units in the past, you should be well-prepared to handle five-plus units on the commercial side.
Multifamily deals typically don’t feature the issues that can impact other property types, such as environmental concerns or mixed-use restrictions. You may wish to work your way to more complicated transactions over time, but multifamily deals provide the easiest starting point.
2. You already know the borrowers
Multifamily borrowers are often the same clients within your existing residential customer base. These borrowers may be the entrepreneurs, small-business owners and other professionals who have trusted you for their residential mortgage.
Leverage your relationships by letting your customer base know that you are offering small commercial loans and can now serve their needs for multifamily purchases and refinances. Examine the real estate-owned (REO) section of closed 1003s to identify current commercial property owners who may be interested in your new offerings. Your clients will appreciate knowing they can come to you for commercial loans, even if they don’t have a deal for you right now.
3. You have more opportunities to close deals
According to a recent Mortgage Bankers Association (MBA) report, commercial multifamily originations increased by 24 percent in 2015. As this niche market continues to grow in 2016, some small-balance commercial lenders are meeting the needs of a wider range of multifamily borrowers through streamline programs that typically require no tax returns or 4506-T requirements.
These programs give you more opportunities to secure funding for self-employed professionals, borrowers who recently renovated their property, and other types of clients who often struggle to get loans because of documentation and income verification issues.
Every streamline program is different, so be sure to ask a lender for a detailed program description before you start marketing to prospective clients.
One of the most interesting aspects of commercial mortgage lending is that no two properties are alike. Warehouses, retail shops, self-storage facilities, offices and other building types each feature challenges you will learn to overcome as you grow more experienced in the commercial arena.
For now though, your best strategy may be to leverage your expertise and master the small-balance multifamily niche. By closing deals and growing your commercial network, you will enhance your reputation as a trusted advisor and earn the respect of borrowers and lenders alike.
Michael Boggiano is national sales manager for Silver Hill Funding, a small-balance commercial mortgage lender offering nationwide financing from $250,000 to $1 million. He may be reached by phone at (888) 988-8843 or e-mail [email protected].
This article originally appeared in the April 2016 print edition of National Mortgage Professional Magazine.
