Building a lender bench in San Antonio. Who pays points on funded investor loans?

Question

Hi everyone. I run REI Professions LLC in San Antonio. We work in owner finance and creative deals, and I am a student of this business like most of us here.

Borrowers keep coming to me for financing I do not originate. Right now I have a local investor who needs a rental cash-out and a construction loan, and he is getting his statements and payoffs together for me this week. He is not the first to ask, so I am finally building this out properly instead of making one phone call at a time.

I am looking to meet direct lenders and brokers who fund business-purpose investor loans:

- DSCR, including rental cash-out refis

- Ground-up construction

- Fix and flip

- Bridge

Texas first, and I am open to lenders who work other states too.

What I am asking is simple. If I bring you a borrower who funds, I want a referral fee or points on that deal, agreed in writing before the first deal goes over. In return you get real, packaged borrower flow, and I will shop quotes honestly. Best rate and terms for the borrower win the deal.

If you work this way, reply here or message me with three things: what you fund, your loan sizes and states, and how your referral structure works.

Appreciate anyone willing to teach me how they structure this on their side too. I am still learning the lending side and I would rather build it on real relationships than on Google.

Chris Colton

REI Professions LLC, San Antonio, TX

Don Konipol · Answer

“Best rate and terms for the borrower win the deal.‘

This is mistake #1. First qualifier is

(1) is the lender actually a lender or is he a DISGUISED broker?

(2) if he is a LENDER, will he really FUND the deal, or is he just looking for contacts?

(3) if he will fund the deal, will he do it on the terms quoted, or will “further investigation” cause a shift in terms, like lower LTV, higher interest rate, increase in points, shorter term, etc.

(4) does the “lender” have the money to fund in the bank, or does he have to have a “capital raise” to be able to fund the deal.

My experience is that tech guys who lack financial expertise, knowledge and experience all think they can program all variables and arrive at the “best” loan for the borrower. Which is why I receive desperate phone calls from borrowers and their brokers two or three times a week telling me that their loan went to closing at the title company three weeks ago and despite promise after promise was never funded by the lender.

The successful brokers I work with use technology as a “tool”, but limit their sourcing to lenders they know will fund a particular loan, and gather and VERIFY the information that lender needs to complete their “due diligence”. The ones that submit a file all over the internet inviting everyone who can spell “lender” to “bid” are known in the industry as “joker brokers”.

Not trying to discourage you, brokers bring us 95% of our deals. But here’s the real crazy part, of the 13,000 brokers in our data base, 80% of our deals come from 20 of them . The others mostly “shotgun” anything and everything without any filter for what our niche is, the realism of the proposition, or the reality of the borrower accepting loan terms. In other words 90% of broker waste a vast majority of their time on loans that will NEVER close.

Ty Burns · Answer

Who pays points depends on the lender and the permitted compensation structure in the state, so I’d get the referral agreement and borrower disclosures clear in writing before a file is shared. I mostly place DSCR rental loans nationwide, including cash-out refis, with a $150K minimum. If your investor's rental cash-out meets that floor, I'm happy to look at the numbers. Feel free to message me here.

Chris Colton · Answer

Thanks Ty, appreciate you jumping in. The written agreement part is exactly how I want to work this. I will message you here once I have the statements and payoff together. Thanks, Chris

Chris Colton · Answer

Erik, thank you for spelling this out. The part about the agreement sitting with the licensed broker who originates the file is new to me, and your checklist gives me a clear picture of what to gather before I send anything. I will get something in writing first and run it past a Texas attorney like you said. I appreciate you taking the time.

Erik Estrada · Answer

(Posted in the wrong thread, please disregard.)

Erik Estrada · Answer

Chris, to your question for Rickey: in practice the agreement almost always sits with the licensed broker who originates the file, not the lender. Most wholesale lenders will only pay compensation to an approved, licensed originator, so they won't sign a referral deal with you directly. The broker pays you out of their side, and it's disclosed on the file. Get that in writing before you send anything, and run it past a Texas real estate attorney first, since whether you can take a fee on 1-4 unit business-purpose loans without a license is the part that matters.

A few things that will make your borrower's two loans move faster:

• Rental cash-out: leases and a rent roll, 2-3 months of bank statements showing rent deposits, the current mortgage statement and payoff, the insurance declarations page, and LLC docs (articles, operating agreement, EIN letter) if it's vesting in an entity. Check seasoning early, since many DSCR lenders want 3-6 months of ownership before they'll lend off the appraised value.

• Construction: plans, a line-item budget, the builder's contract and credentials, permit status, and the land's basis (purchase price or payoff). Expect draws with inspections, interest only on what's been drawn, and a separate underwrite from the rental.

• Sequence them. If the cash-out is funding the construction equity, close it first so the lender sees seasoned funds.

Don's point is the one I'd put at the top of your checklist: a quote doesn't mean much until the lender has actually seen the appraisal and the borrower's credit. Fewer, proven lenders beat a big list.

Erik

Chris Colton · Answer

Don, thank you for this. The four checks you listed are the part I needed to hear, especially telling a real lender from a broker and confirming the money is there to fund. I appreciate the straight guidance, and I will keep it in mind as I talk with lenders. I am still learning this side, so I am grateful for the time you took to lay it out.

Chris Colton · Answer

Erik, thank you for this. The part about the agreement sitting with the licensed broker is the piece I was missing, and I will get that in writing before I send anything over. Your checklist helps too. I am putting the seasoning check and the sequence at the top of mine, close the rental cash out first if it is funding the construction equity. I wrote more on this here: https://www.biggerpockets.com/member-blogs/16509/107158-the-paper-trail-is-the-value-why-every-note-i-create-goes-on-third-pa

Rickey Shneyder · Answer

Chris, on the "who pays points" question, the short answer is that the borrower usually pays them on business-purpose investor loans.

On DSCR cash-out, bridge, construction, and fix-and-flip loans, origination is commonly about 1 to 2 points, and sometimes more on shorter or harder money. That fee typically comes out of the borrower's closing costs. A referral fee or a share of origination is usually paid from that borrower-paid fee, or from lender-paid compensation, depending on the program. It should be agreed in writing before the file is shopped, and it should be disclosed so the borrower can see the total cost, not just the rate.

Two practical cautions as you build this out. First, collecting a fee for arranging a loan can trigger licensing rules. For 1-4 unit residential properties, even when the loan is business-purpose, many states still expect the person taking the fee to be licensed or to work through someone who is. True commercial (5+ units, mixed-use, ground-up that is clearly commercial) is often treated differently, but Texas still has rules worth checking before you collect anything. A written agreement with a licensed broker, where that broker originates the loan, is usually cleaner than trying to look like the lender yourself.

Second, "white label" setups, where the borrower thinks you are the lender the whole time, can create disclosure and liability problems if you are not licensed and you are not actually making the loan. Being upfront that you are referring the file, and letting the best terms win as you described, is the safer way to do it.

On a packaged rental cash-out plus a construction loan, expect two separate underwrites, two sets of points, and a construction loan that funds in draws, not in one lump sum.

Chris Colton · Answer

Rickey, thank you for laying this out. The licensing point is the part I needed to hear before I collect anything, and I will check how Texas treats it before I move a file. On the written agreement, does that usually sit with the broker who originates, or with the lender? I want to set it up the clean way from the start.

Building a lender bench in San Antonio. Who pays points on funded investor loans?

Building a lender bench in San Antonio. Who pays points on funded investor loans?

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