When you go to get a loan for an RV Park you can either do it yourself or use the services of a “loan broker”. In this RV Park Mastery podcast we’re going to review the positive attributes to having a real professional obtain your loans and discuss why we use them on all of our deals.
Episode 118: All About Loan Brokers Transcript
If you're looking to buy an RV park, the old traditional way you finance it is you go around to banks, different lenders, you build a loan package. You see if they want to play ball with you and make the loan. You negotiate the terms. If you come to an agreement, then you do the third-party reports, the legal issues, and you close. That's one option. But there's another option which may be better suited for many RV park buyers. This is Frank Rolfe with the RV Park Mastery Podcast. We're going to talk all about loan brokers. Now, what's a loan broker? Well, the name, it kind of says what it is. It's someone that goes out to the marketplace and does those same steps. They bill the package, they go to the lenders, they come back to you and say, "Okay, here are the top three or four options that we have. These are why you might or might not do them. Here's the one I would pick if I were you." And then if you say, "Yeah, let's go with that one." They handle the entire process for you. They work with the lender, they do everything.
And then you simply go to closing and you buy the RV park. But rather than you having the pain and suffering of obtaining the debt, they do that for you. Now, we've been using loan brokers now for about 30 years, so we're big fans of it. Some would say, "Well, gosh, based on your size, why do you do that? Why don't you just do it yourself? You must know everybody." No, even after doing it for so long, we don't know everyone. And the problem is the playing field is constantly changing. So what do you need to know about using loan brokers? Why would you maybe want to use a loan broker? Well, the first thing you have to remember is they have access to a lot of knowledge that it took them years or decades to compile, and you have none of that. How many times do you finance the RV park? I don't know, maybe once when you buy it. Maybe you have a loan that expires in 10 years. Okay, there's a second time. And let's say you sell the thing in year 18, you only want to round to banks twice in 18 years.
With that, that kind of rapidity, how could you be any good? You don't know anybody, didn't master anything, and everyone you knew has probably changed jobs at that point. The whole lending world has changed enormously. But loan brokers, that's all they do. So they know every bank, every group that's making loans on RV parks, they compile all that information in their brain, and therefore they are so far ahead of you, it's not even funny. If you said, "Well, I'll try and just bone up on it real fast. I'll pull an all-nighter." That's not going to work. You're not going to be able to get 10 or 20 or 30 years of knowledge in a week. So that's the first big issue with loan brokers is they just know so much more than you do. Another item is they're pretty much essential for conduit and some of the more sophisticated lenders, and that's because if you're a lender and that's all you do, you like to work around people that speak your language, that know what you want to see in a loan proposal, that know how to answer questions professionally and timely.
And loan brokers do that, because they speak the language of lenders. Now also they know where the lending is, because there are some lenders throughout different cycles of American banking that are more aggressive than others. And if you wanted to get the lower rate and the better terms, you want those more aggressive banks. You don't want the ones that are like, "Well, RV park, I don't know if I really want to get involved in that." That's not someone who's going to give you a low rate or other attractive terms, but they know all of these people. Conduit lending, for example, is a mystery to most. You can't just walk into a conduit lender, you can't just go in. And they don't have tellers, they don't have offices, they don't even clearly mark who the heck they are. However, the loan broker knows exactly who they are, exactly their contact, phone number, exactly the person to talk to. And it's that body of knowledge, it's a big part of what you're paying for. But yet there's more. Another reason we like loan brokers is they build a better loan package than you do. Of course, they do. They know from experience exactly what banks like to see and what they don't like to see.
They're going to go ahead and organize and take the information you give them, the photos, maybe a drone video and all the financials, and they're going to make that thing look like a beautiful leather-bound book. And you with the same information but lack of skill, yours will look like an amateurish, poorly done thing on loose-leaf paper compared to what they would produce. And when you're a lender and you're searching for signs that the person knows what they're doing and buying this RV park, you can imagine how much comfort they get in seeing a really well-done loan presentation. And that's something that loan brokers always bring to the table. Also, loan brokers only get paid based on performance, and therefore they push extremely hard to get things done. They might push harder than you will, because maybe you had a little bit of reservation here or there. "Gosh, I don't really know if I for sure want to buy the RV park. We'll see how it all works out." They're not going to get a penny for what they do, unless it closes. So as a result, if something pops up, if there's a bump in the road, they are going to be a lot more tuned into that than you are.
Let me give you an example. We once had a loan that was coming up to funding, and the bank itself had financial problems. And suddenly the person we were working with on the bank was let go. And the bank said, "Oh, stop the presses. We're not going to go ahead and make any loans that this guy did for the moment until we can sit back and review them all." What do we do? We're supposed to close in a very short period of time. And now we're being told the bank isn't going to even think about the loan again until after that time expires. So what's the plan? Well, the loan broker take all of our third-party reports, the whole package. He ran around feverishly to every other lender he knew, and he found one that said, "You know what, I'll go ahead and do it." And he convinced them to go ahead and accept those third-party reports done by a different lender, and he was able to get it closed on time. No one would have had that medal of honor performance other than an aggressive loan broker.
Also, loan brokers are the only ones on earth right now who can get you seemingly lower rates. No one's going to be able to get you a loan right now with the front number being a five or a six, other than a loan broker, because they know who's aggressive and who really wants to make the loans. And when you go around and hit just some of the local banks, that you may find, you're not going to be able to get into that pool. And that's going to really cost you, because you're going to pay a higher interest rate than you would have if you just used a loan broker. And we feel that when you add together that, the lower rate, they can typically get you a longer term, they can get you pretty much everything better than you would. They basically pay for themselves. Most loan brokers charge about 1% of the loan as the fee. When you start adding up all the things, all the benefits you have of the loan broker, it's always more than 1%. So in our opinion, either they don't charge enough, or they're basically free. And any way you cut it, that's a pretty great value for people. And don't forget that the loan broker also knows when you ask questions, he knows the right answers.
And that insulates you somewhat from the whole concept of fraud. Sometimes the bank may ask you certain things and you, you don't know the answer, you just guess at it. You're not really sure. The broker knows exactly what you are and are not supposed to say when asked questions about property performance and floodplain and all those items. And again, you might screw up your own loan going in alone just on that one issue, because you truly didn't know the answer, and you were afraid of giving the wrong answer. You were afraid you later be sued for fraud or some kind of error and omission. And the broker takes all of that worry off the table. And that's why we use loan brokers on virtually every deal, even though we have long standing relationships with many lenders. The problem is it's just too doggone efficient and too attractive financially to go it alone. I'm willing to bet if you look at all the RV park loans done every year, and you look at the loans that were done by individuals without the support of a loan broker, and you could compare that to the loan broker, they would kill pretty much every deal that was out there.
I think the loan brokers head-to-head against any individual that went out to the marketplace to get a loan, they would be triumphant. They would win every single race like that. And that's why we think loan brokers are a terrific value for all RV park buyers. Or if you already own an RV park and you have to get it refinanced, also for the refinancing side of it. Because again, when you add up their level of knowledge, their expertise, their guidance, it's always much, much more valuable than what they charge. This is Frank Rolfe with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.