Broker to broker: Know your investor's risk tolerance

Broker to broker: Know your investor's risk tolerance

Having a clear idea of a private lender’s risk tolerance will help brokers maintain increasingly vital relationships at a time when the tight market has made those investors a hot commodity, according to a seasoned broker.

“Knowing a private lender’s motivation and the amount of risk he is prepared to take will help you decide which client to present to them,” said David O’Gorman, broker/owner of MortgageLand Inc. and a veteran specialist in the area. “A good borrower-lender fit at the very beginning will help lessen the possibility of problems down the line.”

For instance, he said, lenders could decide to severe ties with a broker if they are repeatedly mismatched with borrowers or lose money on a deal.

Just as borrowers and their mortgage needs come in various shapes and sizes, so do lenders, said O’Gorman, who has used private lenders numerous times in his 25 years in the channel.

“Some may be individual lenders who are just looking to get a larger return on their money than what the banks or GICs offer,” he said. “There are syndicate lenders who have pooled their finances in order to tackle multiple or larger projects (and there are) more sophisticated or experience lenders prepared to back complicated deals, while others may balk at the thought of funding a second mortgage.”

On the other hand, brokers also need to protect clients against lenders that demand interest rates and terms that the borrower will have difficulty with.

Making sure the lender is clearly advised of the details of the mortgage he is funding is also crucial, he said.

Brokers should provide both parties with written documents that clearly spell out the terms of the transaction, what is expected of each party and what each as has agreed to.

“Make sure you get a signed receipt from them that they have received documents you gave them, seek a lawyer’s assistance if you feel you need one,” O’Gorman said. “If the deal goes sour and the lender does not get his money back, you could be sued.”