Commercial Mortgage Business - Overview 

You don't have to be Warren Buffet or a Wharton MBA to succeed in the commercial mortgage business.  And once you do, it is a very interesting field and provides a tremendous amount of freedom, liquidity and is a low expense type business.  However, like all businesses this is a competitive field and you need to work hard and know your craft in order to succeed in your plans to become a commercial mortgage broker. 

In addition, the current credit crisis has been a serious problem.  Lending options have become more limited and brokers strive to find credit worthy borrowers.   However, this field has seen many down cycles before.  The commercial banking indusrty will be changed, but will NOT go away.  Professionals should keep their perspectives as well as a long term veiw of the industry.  Besides, where else can someone with no licensing, working out of their home, make $250,000 - $600,000 a year? 

The main areas/skill sets you need to master are:  1. Having a strong lender network.  2. Some type of reliable deal flow i.e. marketing program.  3. You need to know how to sell in the commercial loan business.  4. You have to be an expert at prescreening deals.    

Become Commercial Mortgage Broker

Marketing is fundamental.  You need to compete on a lot of transactions in order to find fund-able deals and ones in which you can have some control over.  Obviously there are many marketing methods out there.  The traditional method is developing relationships with the local developers, commercial real estate brokers, CPA’s, attorneys, bank representatives, etc.  This is probably still one of the best ways, though it does takes a time and is one of the harder methods as you may work on a relationship for some time before the referral source even has a chance to “throw you a bone”.   Also, if you are new (or untrained), they will likely be able to sense this and therefore hesitate to recommend you.  Newer marketing methods include mailers, email campaign's, ads in newspapers, etc.  Regardless of which route you go you need some type of program to keep that phone ringing to succeed in this business.

The third component of succeeding in the commercial mortgage business is sales and or building relationships with your clients.  This topic way to complex of an issue to discuss here, but one of the major points you will have to decide on is on how you are going to work with your clients.  Meaning, on an exclusive basis or non exclusive(Exclusive is where the borrower only works through you.  Nonexclusive you are just one of the sources of capital for the borrower).  There are pros and cons of both.  For example, you will lose opportunities if you ask for an exclusive relationship, as many borrowers don't want to give up control, however of the ones you do win, you will have more control over the transaction (We discuss this issue and more in our Commercial Loan Training eBook).  

Commercial Mortgage Business

Prescreening deals:  The amount of time and effort that goes into most deals is significant.  Knowing how to examine and analyze a loan request is critical.  You can easily waste hundreds of hours on loans that have no chance, that's 0% chance of closing.  Probably 50% of the loans we look at are not fund-able – period.  The reason?  It's normally some combination of loan to value (being over-leveraged), historical trends, excessive personal expenses (aka personal needs) and here’s the big one that all of us trip over, the borrower not being able to document enough net income on their tax returns (This is a DCR issue).  Showing all net income for most entrepreneurs, to the IRS, is often like a spy revealing its information in an interrogation.  And there is definitely an “art” side of reporting income from the CPA's perspective.  CPA’s have some freedom on how they report income and will often put together tax returns in completely different ways.  This just makes our job a little more difficult. 

So, you need to be very good at reading the borrowers tax returns to figure out if you have a enough net income to service the proposed loan.  All of these factors and more go into prescreening loan requests.