This post was written for The Rentables Apartment Blog as the second part of a series entitled “Building Your Real Estate Investment Team.”
When it comes to financing our next property, most of us are going to need some help. One of the great parts about real estate investment is that it allows you to leverage other people’s money, and the bank is commonly that “other person”.
To find financing for your next deal, you can either go to the bank and speak directly with a mortgage representative, or you can work with a mortgage broker. In my experience, using a mortgage broker has been the better choice since they work with multiple lenders and can usually find a lender that will offer better terms. Mortgage brokers are in-the-know and are aware of which banks are anxious to lend at any given time. As an investor, you may get to a point where one particular bank is not willing to lend you any more money and working with a broker is nice when you’ve outgrown your bank.
Real Estate Investment Team selection criteria
Like selecting any other member of your team, you’ll want to find a mortgage specialist or broker who:
- Owns investment real estate themselves
- Cares about your goals
- Has the appropriate qualifications
- Has specific experience working with real estate investment financing
- Has reasonable fees
- Provides positive chemistry
What mortgage brokers offer
Mortgage brokers are well connected within their industry, and have access to capital from banks, credit unions, trust companies and other financial institutions. This wide range of funding sources gives them the ability to shop around and find the best rates for your particular deal. Whether you are buying your principal residence, first investment property, or a Toronto apartment building, a broker can find you the best rates and terms.
How mortgage professionals make money
Some brokers charge an upfront fee to put your deal together, but most only get paid once the loan is funded. Usually the broker will earn a fee (from the lender) of 1-2% of the loan value once the loan is complete. Depending on the type and complexity of the deal, they may earn up to 5%. Brokers usually only get paid when loans close, so the smart ones will provide the consulting and advice you need to make sure you don’t get stuck after your first deal. The more properties they help you buy, the more they will earn.
Get some referrals
When selecting a mortgage broker, there are some general things to look for, as well as some specifics. Getting positive referrals from friends, other investors, or other members of your real estate investment team is often a good start.
When it comes to appropriate qualifications here is what you’ll want to look for:
- In Canada – Member of Canadian Association of Accredited Mortgage Professionals (CAAMP) formerly known as CIMBL with an Accredited Mortgage Professional (AMP) designation
- In the US – Member of the National Association of Mortgage Brokers (NAMB) who must adhere to a code of ethics and higher standards of practice
Investment specific experience
When selecting a new mortgage professional as part of your team, it is critical that you select someone with investment specific experience. In fact, the more investment deals they have done, the better. Obtaining financing for someone’s principal residence is much easier than putting together the funding for an investment property, and you’ll want to work with someone who is familiar with that process – especially if you’re not.
Once you have shortlisted a few candidates for your team’s “financier”, consider whether they meet the 6 criteria above. If they do, and you feel good about working with them, then stay tuned and we’ll let you know how to select your Realtor in Part 3 of Building Your Real Estate Investment Team.
As a final note, remember you are looking for a broker who can help you finance more than just your primary residence. Look for a broker who is interested to hear about your goals and is able to help position you well for future purchases.
Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion
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