How to Help Your Borrowers Make More Money, and Win a Client for Life
If you read the business biographies about Walmart and its growth, you’ll see that a huge part of the genius behind their success was their commitment to, and involvement in helping all the participants in their ecosystem to operate more efficiently. The efficiency improvements for their ecosystem partners led to lower costs, better performance, and higher stability for Walmart in achieving its mission. Walmart understood that its entire ecosystem needed to be successful, for it to be successful.
We can draw the same powerful insights for any business, private lending included. In looking at the ecosystem, we can see how the dramatic differences in the ecosystem from 2009 to today have made for a vastly different operating environment for private lending. Silence and fear at buying properties in 2009 has transformed into a broad, insatiable appetite for deals. Capital for lending went from virtually non-existent to prolific in abundance.
So the question becomes … what can private lenders do to help its ecosystem? Well, I see two main players here. The capital, and the investors (borrowers). We know the capital will always be happy so long as returns are there. So let’s turn to the investors. Investors want profits. That’s why they’re in this game. But too often, investors run a project which looks great on paper, but which may not pan out for them in the end.
What can lenders do to help the investors / borrowers improve their efficiency, profitability, and sustainability? EDUCATE and CONSULT!
BECOME A TRUSTED ADVISOR:
There’s plenty of generic education out there. The marketplace is filled with it! And while it can often be a great strategy to create speaking engagements and/or provide educational material to prospective borrowers, that's not what I'm talking about there.
I’m talking about hardcore, on the job guidance! Real, tactical analysis, advice and education on the SPECIFIC property the investor is buying! Every market is different, every project is different. For one project, the renovation which would be an amazing, gorgeous and profitable rehab, could become a disaster of overspending or underspending for another.
Seriously, you ask? How would the lender know this information? Lenders aren't in the business of consulting! And furthermore, doesn't this open up the door to legalities in providing advice? I'm not an attorney, so you should ask your counsel what the right way to do this would be. I'm sure there are a set of disclaimers (which may already be embeeded inside your paperwork) to protect against this. So for now, let's at least go back to that first objection? How would the lender know this information? What tools and information does the lender ever have at his/her disposal, aside from an ARV appraisal which is really just a pre-baked report based on the borrower’s proposed rehab scope of work (SOW) anyway? Well, in the ordinary set of tools in today's industry, the lender actually wouldn't be able to provide this guidance!
That’s where our AI-based real estate software comes in.
Our lender clients now have the quantitative and qualitative information on every asset, every market, and every comp, to provide this education to their borrowers. (see recent article FIXING That Flip: Are We Wasting Our Money?)
If a lender can help its borrower increase his/her profit on a deal by $20k? THAT becomes a customer for life! That lender made the transition from capital provider, to consultant / advisor, and the long-term loyalty which comes from that is huge. Plus, the fact that they will want your help for the same analysis next time!
The long-term health of the industry is dependent upon investors who are able to stay in the game. Not the folks who read a book, do a deal, and end up with no reason to do another. So let’s take a step forward, help each other out, and become that consultant for your borrowers!
Happy hunting.
About Us: Apex Resource Partners, LLC assists clients with various services to improve their real estate lending and/or investing business. In 2018, Apex launched an AI analytics software which determines As-Is Value, ARV and renovation costs on residential property nationwide with industry-leading accuracy. With this software, Apex is helping lenders and investment companies across the country improve their profitability and avoid risk each and every day. For questions or inquiries, please email Rodney directly at [email protected].