Find Your Niche in the Real Estate Market
What are some good niches for loan brokers to focus on in today’s real estate market?
Within the commercial real estate finance marketplace, there are several property types that lenders are more comfortable with financing than others. This is due to the various economic risks each property type inherits. These days, multifamily buildings seem to be the most desirable properties lenders seek out to finance because of the lower risk for default, and because they are more insulated from economic pressures.
But what if a loan broker wanted to pursue more of a niche property type?
There is a surplus of commercial real estate for sale in today’s market which offers some great opportunities for buyers and borrowers. Most loans on commercial real estate may have amortization terms of 20 to 30 years, yet the term for the rate (the period of time the rate is fixed) often is for a far shorter period, 5 years being the most common. One may recall that the prime interest rate was between 7.25% and 8.25% for the period between 2006 and 2008. Many of the loans that originated for commercial real estate between 2006 and 2008 are now coming due for refinance. This creates an excellent opportunity to refinance at the current lower market rates.
There are two areas in particular that present an excellent opportunity for refinance given recent changes in the lending market. Firstly, both fixed and variable rates are substantially lower than they were 4 to 5 years ago. Secondly, changes to the SBA lending guidelines have not only increased the maximum SBA loan amounts, but have added new eligible loan types to the list of qualified business types.
Previously, self-storage facilities were only eligible if more than 50% of the business revenue came from sources other than monthly rents, or from what the SBA considered, “sufficient services.”
The new SBA guidelines now say that a business with “passive income” (i.e. rental income), where the owner controls both entry and exit, are eligible. This now makes almost all mini storage facilities eligible for SBA financing, including Mobile Home Parks!
Additionally, Recreational vehicle parks (RV Parks), Campgrounds, Marinas and similar types of businesses, are eligible for SBA financing if 50% or more of the business’s revenue for the previous year was from transients who stay for 30 days or less at a time. If the business is a start-up, the applicant’s projections must show that more than 50% of the business’s revenue will be derived from transients who stay for 30 days or less at a time.
The best bet right now is to seek out those property types mentioned above that had loans originated 4 to 5 years ago. There are several services available that one can pay to search county records under these property types to seek out.
Many lenders will still pass on these types of properties due to inexperience with (or lack of comfort with) these properties, so there is a real opportunity to focus on a real estate product niche with these. Of course a loan broker has to have the right capital sources, ones that specialize in these property types. The Commercial Capital Training Group has those sources, and they are a part of the core lender base that is introduced to our graduates.