All self-storage investing revolves around obtaining financing. While most people think this is their job and must do it themselves, there is another option and that’s utilizing a “capital consultant” which is also known as a “Loan broker”. And you should think about this before you start contacting lenders.
What is a “loan broker”?
A loan broker is an individual that takes your loan package to market and brings back typically two or three potential lenders for your consideration. They build the package, the financial information, the target list of banks, make the presentations, and return to you a list of recommendations – which is basically the entire loan process. For this service they typically charge a 1% fee. Basically a loan broker acts as a matchmaker between the borrower and the lending community.
The benefits of using a loan broker
A loan broker allows you to accomplish some important steps:
- Shortens your learning curve on who’s making loans right now. It’s impossible for you to start stone cold on finding a lender and even pretend that you know who to contact first. A loan broker deals with banks all day and knows precisely who is lending and what they are looking for.
- Can lead to better rates and terms. Since loan brokers are very fluid in the lending process, they can negotiate rates and terms much better than you can. They often pay for themselves in just this one functions.
- Saves you a ton of work. Building a winning loan package and going out and hitting lenders and negotiating loan terms is not something that most people want to do, even if they have the ability. The loan broker does all that for you.
- Gives you a back-up plan if the loan falls apart at any time in the process. Not all loans go according to plan. So if your loan falls apart before it is funded, a good loan broker and pick up the pieces and find another lender quickly to take over. You would never have the ability to find a back-up lender on your own fast enough to save the day.
The potential pitfalls
But using a loan broker can also cause some risks that you need to be aware of.
- Make sure you understand the fee amount. The amount of the fee that will be charged as part of the transaction needs to be hammered out on the front end. While most loan brokers are honorable, there are also those that are predatory. Don’t just assume you know the all-in cost but instead ask for it (preferably in writing).
- Vet the loan broker to make sure they have a track record of success. Not all loan brokers are created equal – so to protect your interests you need to carefully vet the broker to make sure they know what they’re doing (remember the loan broker in the film “American Hustle” that took fees and did not even apply for loans?).
- Separates you from the process – distancing your information flow and its accuracy. When you depend on a loan broker to find your loan you also lose some degree of control and information flow. At some point the loan broker knows far more than you do and you are dependent on them to give you status updates. A bad loan broker will give you a warm fuzzy feeling that everything is fine and then suddenly let you know the loan deal has collapsed, catching you completely off guard.
We have been advocates for the usage of loan brokers for 20 years. We find them to be hugely valuable in getting good loans fast and at great terms. After all these years we could go direct, but we’d rather let somebody else do the work and then make their cost back in lower rates and better terms. If we had to choose one broker for self-storage facilities it would be M.J. Vukovich at Bellweather. You can reach him at (720) 758-9227 or email him at [email protected] .
If you’re trying to get a loan on a self-storage facility, then utilizing a loan broker may be a great idea. These tips and warnings should get you started on your search.