My first deal - Do I need a broker?

Question

I'm about to make an offer on my first RE deal.  It is a $1m+ commercial property.

Should I use a broker or just apply for financing myself?  What would a broker do for me anyway?

The broker I talked to said he usually charges about 1% of the property price.

Lynn Z · Answer

My daughter was a realtor and got involved in several commercial deals.  It was a learning experience for her including enviromental impact studies etc. and in the end the deals fell flat after a year of negotiations.

How do you know what to offer if you're new to real estate?  Any commercial lender will tell you if they'll do the deal after getting your vitals and pulling your credit but isn't commerical tanking right now?  Everything is for sale on our main street.  Where will the tenants come from?  Who is the listing agent?

I don't like middle men unless they're doing me some good.  1% of sales price
seems like alot just for introducing you to bankers.  Be cautious...I just asked an experienced CPA about 1031 exchanges and although he teaches a class he just wasn't up on the changes.

Da Deep · Answer

There are all kinds of investors, so what applies to you may or may not apply to the next guy. There are plenty of people who know how to MAKE money but are quite clueless about managing it or investing it. Doctors are a case in point.

Mark Borderud · Answer

You don't "need" anything.  It's really just about choice.  Get all the information you can, and choose powerfully.  Good luck.

John Thompson · Answer

A broker as myself can bring alot to the table.

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C Folland · Answer

Start with the big lenders for reference and then see what a broker can do for you.  I used to use WAMU Commercial a lot, so whoever is similar, now that WAMU went under.

Pete Wagnor · Answer

Hi,
                        
                        I would suggest you to go through a broker because they would get the deal closed quickly. They would help you in raising funds etc.
                        
                        Thanks,
                        Pete

Kevin Mace · Answer

Commercial is not my can of worms but you want to get a few good faith estimates.  I understand your concern about paying points but just as an example  let's say you have a 700k loan amortized for 30 years at @ 9%.  That would carry payments of $5,632.  Now let's say you pay a point (at closing - never in any case should you be paying upfront fees) or $7,000 and get a rate of 8%.  Monthly payments would be $5,136 - saving you $496 per month.  7k @ $496 per month would take you just over 14 months to recoup the $7k initial investment.  Let's say you stayed in the loan for 30 years - you will have saved $178,560 for $7k.  As you can see saying you don't want to pay points may not always be in your best interest.

Generally for short term financing (less than 5 years but you can do the numbers) you want lower closing costs and higher interest rates but for long term financing you are willing to pay let's say$7k to save $170k.

Christian Malesic · Answer

I am not the kinda guy who uses a broker.

I use local banks in town and have set up relationships with many, even those I have not yet used.

Put together a great financial packet and shop it yourself (there are many posts on how to do that or start another thread and we will get into).

That said.  As Wheatie indicated, the best deal you will likely find is 80% of contract price OR appraisal value, whichever is LOWER.  The rest comes from cash.

Jon Holdman · Answer

Run, don't walk, away from any broker that wants an up front fee.  Its part of the closing transaction.  You'll almost always pay an "origination fee".  Using a broker shouldn't cost you any more than going direct to a lender.  Certainly, there have been a lot of incidents in the recent past where bad brokers stuck people in bad loans because they generated a bigger commission.

Like David, I STRONGLY recommend you find someone you truly trust who can guide you through this transaction.  There are lot of people in this business who prey on folks who don't quite know all the ins and outs.

Dave P. · Answer

Stuff,

I should have tempered my response. I apologize if I came across as condescending. I would just urge you to be very careful as you progress through this purchase.