Top originator urges niche brokering, focus on property investors

Top originator urges niche brokering, focus on property investors

With an originations slowdown sending brokers scrambling to diversify their portfolios, a top Ontario player is arguing “niche” brokering may actually be the best way forward.
 
“In 2011, our originations from real estate investors will likely surpass 50 per cent of our total volume,” Dave Butler, of Verico Butler Mortgages Inc., told MortgageBrokerNews.ca. “In 2010, it was roughly 40 per cent. My single best determinant regarding sales success was listening to Peter Kinch many years back and concentrating on being a niche broker. I felt that Peter was correct in his assessment that real estate investors were a very underrated and under-marketed block of potential clientele.”
 
The analysis presents a counter argument to the strategic advice of a number of industry veterans committed to the single-family residential market despite what CMHC calls a dwindling number of first time-homebuyers in Ontario and Eastern Canada. While new purchases have also slowed across much of the West, Vancouver brokers are also contending with the highest home prices in the country. That, coupled with the highest occupancy rates in years, is discouraging potential buyers from entering the market.
 
Butler, who personally struck 509 deals last year for a funded volume of $130.6 million, has managed to steer clear of those obstacles in large part because of his portfolio of property investor clients – one group that has successfully exploited historically low interest rates and the glut of inventory now driving down prices in key markets.
 
“It doesn’t take a genius to figure out that your average client might need your services for their mortgage every two to five years,” said Butler, a six-year veteran of the industry, “whereas a real estate investor may need your services for five to 10 different mortgages per year. How hard is it to close a deal for a client 10 different times in the year if you already have all his documents on file from previous deals?”
 
It can, in fact, be significantly higher, argues Dustan Woodhouse, another high-volume broker, with Dominion Lending Centres Canadian Mortgage Experts.
 
“Those deals are generally more involved and complex,” he told MortgageBrokerNews.ca. “I think a look of brokers may not have the depth of knowledge needed to do these deals.”
 
Butler doesn’t necessarily disagree, although maintains that tapping into the real estate investor market is a straightforward as well as lucrative process.
 
“Brokers break into this end of the business by doing their homework,” he told MortgageBrokerNews.ca.  “Scout out who the local real estate brokerages or brokers are, in your surrounding area that specialize in working with investors and attempt to build a relationship there. Make yourself extremely knowledgeable about all the different mortgage products out there for real estate investors. Each lender is different when it comes to mortgages for investors so you need to know your stuff.”
 
It’s advice that even some high volume brokers might want to take to heart, he said, pointing to past conversations with industry veterans who “have no idea that lenders like Scotia and FirstLine will lend to 80 per cent LTV on a rental with no insurance premium” or “that for every investment property that your investor has, or is purchasing, you must show a $50,000 net worth requirement per property when doing the deal through Scotia.
 
Property investor clients generally demand a much higher level of expertise, said Butler, exacting standards that can end a relationship with a broker quite quickly.
 
“If an investor senses that you might be flying by the seat of your pants and you don’t really know your stuff, they’ll drop you in a heartbeat,” he told MortgageBrokerNews.ca. “As much as investors can be extremely loyal once they find a good broker to work with, they are also typically willing to kill a relationship right there and then if they think you are not as good as you say you are. Also, brokers must incorporate some extra value-added services for investors that have nothing to do with the actual mortgage otherwise they’re perceived as no better than the local bank.”  
 
3 Comments
  • Art Connor....Mortgage Centre Owen Sound 2011-08-12 3:05:57 AM
    Equity Lending is a necessity of life..unfortunately most institutional lenders havent quite accepted this as good business practice, typical underwriting guidelines put up obstacles,,IE location of property, appraisal guidlines,self employment criteria etc, etc

    In my opimion they are missing out on the most profitable type of business they could book..Borrowers in this category are not rate sensitive and are appreciative of the brokers effort..We need a simple equity product with tiered pricing based on credit score and property type.. any recent appraisal (CRA or AACI) and a broker inspection report IE pictures and a copy of the current property tax statement is enough for private lenders
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  • Greg Williamson 2011-08-12 3:58:43 AM
    Interesting take an what brokers need to succeed or at least sustain going into the uncertain future. I agree that exploiting an underserved niche is an excellent strategy. However, I caution big time having only ONE niche as this article suggests for Dave. I want to have several powerful niches so that if something happens to change the game, and it seems that always happen, then my overall business is safer.
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  • Kyle Green 2011-08-12 4:21:23 AM
    Good topic.
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