Part V in a series: Construction-to-Perm

Simple math tells us his gross commission average was in excess of $36,000 per month!

"Try not to become a man of success but a man of value."
~Albert Einstein

Have you ever driven down the street of “that upscale neighborhood” and daydreamed about living in one of those ‘custom-built’ homes? Did you imagine what it would be like to build that special custom home of your own? You and millions of others like yourself do that each and every day. It’s the ‘American Dream’ – owning that special home we can call our castle.

When most borrowers are in the market for a new home, they go the traditional route –

1. Contact a lender (you!), realtor and insurance agent
2. Spend many weeks searching the local neighborhood for houses
3. Ultimately settle for a house based on someone else’s personal preferences
4. Spend many more weeks going through the borrowing process

Here’s the funny thing – while driving around in search of that ‘perfect’ home, part of borrower’s mind is doing what we mentioned above – daydreaming about how nice it would be to start from scratch and build a home just the way they want it.

When it comes to residential home buying, chances are you could be the answer to their innermost desires. Although we’ll concentrate on single-family homes, it would be wise to keep in mind that there are other uses for this niche – including major home remodeling and renovation, commercial construction and ‘mini-perm’ loans for commercial properties.

What Is Construction-to-Perm?

If you think back to your high school English classes, just apply what you learned there – it is exactly what it sounds like! Two phases of the loan process – the construction phase and the permanent phase. In the past, these two phases were often separate and required a few extra mountains of paperwork and deep oceans of patience on the part of the borrower. Today, there are many programs which integrate both into one, where the borrower signs one set of loan documents that cover both the interim construction phase and the permanent loan phase.
This has been of great value to borrowers and lenders alike – in one single loan closing:

1. The borrower can pay for the lot
2. The borrower can pay all relevant attorney fees and closing costs
3. The borrower can lock in at current market rates
4. The borrower can setup a loan to fund each phase/step of the home construction (with the builder/general contractor).

Best of all, when construction is complete and a Certificate of Occupancy is issued, the loan converts into a permanent loan which had previously been setup with the initial closing. This permanent loan is the traditional or conventional home mortgage portion.

How Do I Begin?

Marketing is what builds and sustains the business. Without it, the money does not flow. Those long hours of marketing to build your expertise will come in handy when speaking to borrowers. However, there is a new link in the marketing chain that you are going to need, and that is the ‘builder’. In many instances you will also work with general contractors, but for simplicity, we will only refer to builders here.

Where does the builder come in? Well, that’s a great question and let me answer it by saying that builder’s have a fantastic marketing strategy that offers them exclusivity and puts them directly in the face of their target market. This fantastic strategy is often overlooked by others, but builders know it well – it’s called the construction site! How many construction sites do you normally pass in a single day – or week? Have you noticed they often have big signs announcing a future community? When you passed by, did it pique your curiosity...even slightly? If so, then you have just been ‘touched’ by a builder’s marketing. Without going into the specifics of their other marketing strategies, let’s focus instead on how you can build strong relationships which could lead to something that is like a gold mine in this industry – the ‘joint venture’.

Obviously there are large scale, public corporation builders and smaller, private builders. Landing the big, multi-billion dollar corporation with an exclusive JV contract is probably not for the beginner. However, there are many smaller builders that do home construction on a scale more suited to the mortgage broker who can give the time and personal attention that would be needed.

A great way to find those builders is to contact (or possibly join) the local builders association in your area. Below are some helpful links to get you started:

1. National Association of Home Builders
   1. http://www.nahb.org/local_association_search_form.aspx
   2. NAHB provides listings for builders and for local building associations in each state.
2. Associated Builders and Contractors
   1. http://www.abc.org/wmspage.cfm?parm1=2033
   2. ABC provides links to builders and contractors within each state. Simply choose your state name, then scroll to the bottom and click the SUBMIT button.

Building Relationships with Builders

There are several ways to approach builders. The first is by visiting a construction site and finding the construction manager. That person can help you find the proper contact person. Another good way to approach builders is through direct marketing, either via telephone or direct mail. A third way to reach them is by contacting the local or state builder’s association and offering to speak to the builders. If you decide to go this route, you must be prepared to show them why you are the “go-to” person who will help them reach new customers.

Success might take some effort, but it is rewarded handsomely. The builders will be putting a lot of trust in you to take good care of their customers. Since one hand washes the other, top notch performance on your part will be well rewarded.

An example of how one successful mortgage professional (we’ll call him Mitch) who specializes in the ‘Construction-to-Perm’ niche demonstrates how lucrative this niche can be. Working with a medium-sized specialty builder in Oregon, Mitch was able to negotiate an exclusive contract with his builder where Mitch would provide the financing for qualified customers. Keep in mind that this contract was negotiated after Mitch first proved himself able and capable to work with the builder’s customers on several deals.

Mitch’s services were included in the builder’s marketing as the preferred lender. The builder offered financing incentives (well within RESPA guidelines) to customers who used Mitch’s services. Some of the incentives included were payment of the “lender buydown points” and “broker points”. By doing this, the lender was able to offer lower rates than the local banks, plus paid the broker’s commission. Let’s just say that these incentives were useful in securing many clients for the builder. But more important is how Mitch viewed it from his own perspective.

To the builder, Mitch was providing vital services that helped generate cash flow, profits and the means to smoothly go from one project to the next. In the builder’s mind, Mitch was doing all the dirty work in order to sell homes, while allowing the builder to do what he does best.

In contrast – from Mitch’s perspective, it was the builder that was doing all the work! He looked at it this way – the builder was paying for an onsite trailer office/semi permanent building office, was paying all the marketing costs, was providing scorching hot, physical in-person leads who more often than not became customers – and finally, was paying Mitch’s commission out of his own pocket to help them. To Mitch, this opportunity was the best of his life. As a new golfer, Mitch knew that mornings on Tuesday and Wednesday were notoriously slow, so he timed his office hours around his lifestyle. In return, he generously showed up on Saturdays to help during the busy weekends.

How One Contact Can be a Gold Mine of Opportunity

When I asked Mitch how he met this builder (really I asked how this fell in his lap!?), he replied that it was indirectly through a borrower. He had been working with a borrower who had a custom home built. During the construction, he was also often in contact with the local builder as one of the people in the entire project. The builder was pleased that Mitch did “his job” and got the home financed without a hitch, and invited him to an evening get together with his family and friends.

Can you imagine who most of his friends are? OTHER BUILDERS. On the evening of the get together, Mitch came in contact with several other builders and upon introduction, gladly answered questions when asked. One was impressed and asked if they could talk more over lunch. From that lunch, this Gold Mine of Opportunity was created.

Were you wondering what Mitch’s numbers were like? I cannot give you exact figures, but I am allowed to let you know that the home values in the most recent community construction project began at just over $450,000 each. Mitch was successfully closing an average of 4 or more home loans each month (sometimes as many as 9 or 10) and was receiving 2 points commission on each loan. Simple math tells us his gross commission average was in excess of $36,000 per month.

Let me ask you – would you be willing to work in an office that you didn’t have to pay for, could make your own hours for your lifestyle and your family, didn’t have to feed realtors donuts while begging for business, and could get paid over $30,000 every month?

Common Terminology

For this niche, you’ll need to brush up on your ‘builder speak’. Below are a few common terms and a link to over 900 more terms:

• 2/10 Rule: Rule which states that the top of a FLUE must be at least two feet higher than any roof part within ten feet.

• Aggregate: Sand, gravel, or a combination of both. The use and size of gravel varies depending on whether the product is CONCRETE (sand plus gravel larger than 1/4 inch), GROUT (sand plus gravel 1/4 inch or smaller), MORTAR or PLASTER (sand only).

• HVAC: Abbreviation for Heating / Ventilating and Air Conditioning.

• Mansard Roof: Roof style with four sides similar to a HIP ROOF but each side is divided into an upper and lower section, the lower section having a steeper SLOPE than the upper section. Often, the center of the MANSARD ROOF consists of a FLAT ROOF.

• Structural Engineer: Person trained to determine the material type, grade, size and placement requirements for safe construction of the STRUCTURAL PARTS used in a building.

Construction Glossary Link:
http://www.builderonline.com/content/resources/construction-glossary.asp

Once again I cannot stress enough the importance of marketing to your borrowers in a tightly focused way – you absolutely must answer those questions, anxieties and deep desires that keep them up at night. Put yourself in their shoes, then imagine how you can be the solution provider for that specific, focused problem. Become the expert, keep learning and tell everyone about it.

Stay tuned for the next article in this series of niche markets.

To your success!
Grant C Robin

Grant C. Robin is a Nationally Recognized Mortgage Expert based in Miami, Florida. He is a niche specialist and has been mentored by some of the finest trainers in the industry. For more information about Grant C. Robin, contact his office at (786) 522-5321 or write to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it