The Agent Podcast - EP 91 - Mark Rotter - What lenders won't share
[00:00:00] Mark Rotter: So, you know, one of the differences in that we see out there, I, I'm going to kind of lift up the covers of the financial institutions today. Nobody. Even credit unions, but particularly banks, nobody ever says, we're not lending today, but there's a lot of lenders behind the scenes who are saying, we're not lending today.
[00:00:27] Mark Rotter: And what they do is they raise the interest rates or tighten the box to make it so they're not lending. And that really comes down to one thing and it, and it's not demand for loans. It's liquidity concerns. You know, and some people put a cover on it like, oh, we're concerned about the marketplace, we're concerned about this.
[00:00:49] Mark Rotter: No, they, they're concerned about their own liquidity.
[00:01:22] Ray Sjolseth: Hello and welcome back to another episode of The Agent Podcast Today I'm here with my buddy, mark. Mark. Welcome to the show.
[00:01:29] Mark Rotter: Thank you for having me. Looking forward to the conversation.
[00:01:32] Ray Sjolseth: Me too. Why real estate?
[00:01:35] Mark Rotter: I really believe it. It's how America is built. I believe it's how you build wealth personally. And, and in my case, it's how you can build passive income and diversify along with just peace of mind of the asset that, that, you know, 99 times out of a hundred is going to build your wealth and provide you with some joy at times, and, and you can, it's a great way [00:02:00] to, for Americans to succeed in life.
[00:02:03] Ray Sjolseth: So, mark, I've done a little bit of research on you and your company, and you guys have taken a little bit different approach than most. Can we get into it? What exactly you do and how you operate.
[00:02:12] Mark Rotter: Absolutely. And, and, and once I explain it to you, it'd probably be good for my wife and kids to listen to this because sometimes I, I think they can't even explain what I do. Sure. And, and, and, and first of all, I am the c e O of a company called M B F S. Which stands for Member Business Financial Services, and we are a company owned by 13 credit unions and we work with over a hundred credit unions nationwide and we focus on one major piece and that is providing real estate investment loans.
[00:02:51] Mark Rotter: To investors through working through real estate agents working ac all across the country in different types of asset classes. And we, we help these people get the financing they need through credit unions. Which, I like to come on shows like this because, you know, people have been in the industry for years.
[00:03:11] Mark Rotter: They've seen a credit union, but they really don't know what it is. Or sometimes they don't think of this source as for credit unions to go get the financing they need, even though they're, they're probably driving past one every single day.
[00:03:25] Ray Sjolseth: It's funny you say that because you know, when I looked at the website and what it is you guys do, I'm like, okay, like I've always thought about credit unions, like the teacher's credit union, or there's a county credit union or some type of government based, you know, facility, credit union.
[00:03:39] Ray Sjolseth: And it's been my understanding that typically like they were more expensive, like it was more costly money to use for investment purposes or even to finance a car loan or something like that. What are some of those myths like I think that most people think about with credit unions when it comes to investing or financing?
[00:03:58] Mark Rotter: Yeah. And, and, and the first one is a lot of times I, I'll, I like to throw out there what exactly it is to, to kind of set the table on that. And, you know, listen, when, when you drive past, they have ATMs. They say, come get your auto loan mortgage. You know, they have a teller line and, and, and they look just like a bank.
[00:04:18] Mark Rotter: So, so, and money's money. My dollar spends the same as everybody else's dollar. But what a credit union is, it's a not-for-profit financial cooperative. And when, when you look at the board of directors, it's through democratically elected members of the institution. It, it's not shareholders who can sell the institution and, and build bigger credit unions and build the empire that you sometimes see in the banking sector.
[00:04:48] Mark Rotter: So, so it's really. A not-for-profit cooperative that is run for the benefit of the institution. And, and growing up, I had the same impression that you did because my dad was a member of the, the factory that he worked at. He always used to talk about the credit union that he belonged to, and it was just for the people who worked at his factory.
[00:05:15] Mark Rotter: And you know, those what I, what I kind of call the, the corner of the factory or the corner of the building credit unions that were just for teachers or government workers or a military base or some other, you know, big employer in town. And, and those days are really gone. The accessibility of credit unions has changed quite a bit over the years and, and it all started around the year 2000.
[00:05:42] Mark Rotter: It was 1999 to be exact when, you know, the laws changed, that that really started opening the membership of credit unions. And you see Mo, if, if the odds are there's probably a 97% chance if somebody drives past a credit union in their hometown or region, they could go in and open an account, you know, and, and, and, and usually they're either open to people in a certain geographic area or they have different ways of joining through different associations or groups or maybe who you work for now.
[00:06:18] Mark Rotter: So, so, so they're much more accessible than that impression of of, of what people thought a credit union was.
[00:06:28] Ray Sjolseth: So interesting. And the accessibility factor now versus 20 years ago. So how does that work? It's not for profit, right? There's money coming in from its members.
[00:06:40] Ray Sjolseth: There's the ability to lend that money, whether it's for an auto loan or real estate transaction, or even a real estate investment. At the end of the day, it's all about cost of capital to some extent. Right. So how does that differ versus Chase or some of the bigger banks out there, or especially on the commercial side, if you're in, you know, multifamily real estate.
[00:07:01] Mark Rotter: Great question. And if you look at your average commercial bank, they have loans out many times in, in many times in excess of their deposit base.
[00:07:14] Ray Sjolseth: Yeah. Multiple. They, like nine times
[00:07:16] Mark Rotter: they're go, they're, they're going out and leveraging and borrowing the money. They're borrowing it from other investors and different sources, and that is a very expensive proposition.
[00:07:27] Mark Rotter: That, that whereas a credit union, if you, if you deposit a dollar at your local credit union, about 85 cents of that in today's marketplace is out the street on loans. So they're lending the, they're lending actually a much lower cost of funds than your bank. Just for that because they're actually lending local money that are local deposits.
[00:07:58] Mark Rotter: Like I said, about 85% of every dollar. And that fluctuates a little bit up and down. So if you really think about the. Deposit rates that you get at an institution, you know, it, it's fair, but it's not going to, it's not 1984 where you're getting 15%. So, their cost of funds is very low.
[00:08:22] Mark Rotter: And most of the time, you know, if, if you want an auto loan credit unions dominate the auto loan business. Even compared to some of the captives and big banks be because they're, they're very good at it. They do it in volume and they're usually the cheapest. And it's the same concept for mortgages, but also what the area that I specialize in, which is real estate and investments.
[00:08:47] Mark Rotter: They're lending those same dollars out and they can be very, very reasonable in terms of the interest rates that are out there and the fees that are on top of it.
[00:08:58] Ray Sjolseth: Okay. Got it. So for the average real estate investor, yes. Why would you choose a credit union over a traditional bank?
[00:09:07] Mark Rotter: Well, first let me, there's always. The 10% of the very best of the best credit people, and the 10% of the bottom of the bottom, you know, that 10% can always get what they want everywhere.
[00:09:22] Mark Rotter: The bottom 10%, you know, I, I can't help and most of us 10 to fall in the middle. What do people always talk about? They, they want a relationship and they want to be able to talk to somebody. So, you know, we collect financials just like everybody else. You know, we have to show that you can pay back the money, but.
[00:09:45] Mark Rotter: When we get that financial, one of the things that where credit unions really succeed is just that the relationship and talking through and understanding who you are and where you're going. And it's not to, me it's not just about this loan where, but it's more about the relationship on we can help you out across the board and where is it easier, especially when you're first starting out or those first few projects that you may have? It's much, much easier to talk to somebody that you have a relationship with. That you have a relationship with, or to build that trust factor to show that yes, you are credit worthy because I've had my account here for years and I've never had a problem, and over 125 million Americans belong to credit unions.
[00:10:43] Mark Rotter: So, people may have had, you know, maybe they got it and, and their, their parents opened the account for kids when they were a kid. Maybe they have the auto loans. So a huge number of your listeners. Belong to credit unions, but they just haven't thought about going to the credit union for their real estate investments, particularly when you're first starting up.
[00:11:06] Mark Rotter: We're very open into types of properties. We, we tend not to just lend in a box. So, you know, the, the, the big bank lenders, they, they push the widgets through, and it spits out whether it's either approved or declined. We've all seen that. But we really try to take a little bit of that objective numbers that we all have to live by, but also can wrap around the subjective story of who you are and where you're going and what makes sense.
[00:11:39] Mark Rotter: And in today's world, too. Financial institutions tend to look at macro level trends. We don't like this segment. We don't. We, we stop lending on real estate investments. We stop lending on this type of investment, whereas the credit unions, since they're a local lender, e even in bad segments of the real estate marketplace, there's good deals.
[00:12:07] Mark Rotter: So, you know, not every deal in, in, in a, in a undesirable segment is a bad deal. So since credit unions tend to lend locally, they can understand that and they can, they can go through the, the pieces and make sure your deals are good. But one of my favorite pieces, for real estate investors if, if you've ever received a loan in an L l c or as some other entity that you may have, it tends to be the wild West.
[00:12:40] Mark Rotter: You know, we, we've all sat through. The consumer loan disclosures where it's very regulated and if one thing changes, then you gotta re disclose and you keep going through and through and, and every real estate agent is familiar with that nightmare of a process that's all out the door when it comes to real estate investments.
[00:13:02] Mark Rotter: You're on your own. So, so credit unions because of their not-for-profit nature, They, they tend to be fair, you know, down the middle, fair to both parties, but also nothing we can, nothing we do will ever have a prepayment penalty. And when rates were 3% two years ago, you know, nobody, nobody cared what the terms of the deal were.
[00:13:28] Mark Rotter: You It was all, oh, hey, I'm getting a great rate. It's locked in. Thank you. Have a good day. Now, in a higher interest rate market, You better be cognizant of the terms of your transaction because there's no disclosures needed by the lender. It is your responsibility to read the paperwork and understand.
[00:13:50] Mark Rotter: And in a higher interest rate market like this, you could be locked into a prepayment penalty if you, if rates decline, which I think they will, and you wanted to refinance those loans. With a credit union, you always have that freedom.
[00:14:05] Ray Sjolseth: So interesting. Why do you think there's such a lack of education about this out there?
[00:14:12] Mark Rotter: I've been in the credit union business lending space for 20 years. And when I first got into that space, I was laughed at when I walked into the local community event. You know, there's that goofball from the credit union trying to do. And when you looked at the entire marketplace, they were right.
[00:14:33] Mark Rotter: Credit unions were a speck of dust in the entire landscape. And think about the, the, that environment from 20 or 25 years ago, every community bank had had First National Bank of whatever your hometown was. You know, first community bank, every, you know, the, all of these banks were lending in your community.
[00:15:00] Mark Rotter: And really, you know, we're, we're that credit union of the past almost with those relationships, well, they're gone. They're gone and, and, and it's really only, I would say, been the past decade that the reg regulatory environment has opened up so that credit unions can offer just as attractive a terms as anybody out there.
[00:15:28] Mark Rotter: Particularly when it comes to residential real estate investors, there's some very favorable regulations for credit unions to lending to one to four family unit properties, particularly if it's an L L C, because as we all know, that is a nightmare scenario. If you go to your traditional mortgage lender and say, I'm buying this single unit or a duplex and I'm going to put it in my l l c, you know, it basically just gets thrown out.
[00:16:01] Mark Rotter: So, last year credit unions funded more than $50 billion in commercial loans to real estate investors. And, and it's, and, and it just keeps growing because some of the other options just keep going away. And as the industry gets more consolidated, you know, people look for the, this is a relationship business.
[00:16:28] Ray Sjolseth: Yeah.
[00:16:28] Mark Rotter: Much like being a real estate, you know, everybody on, on the internet, you know, wants to try to, you know, automate and become, make a real estate agency internet based with no people. But you know, at the end of the day, it's a relationship-based business. And I look at real estate investors as just that same piece.
[00:16:50] Mark Rotter: It's a relationship-based business. And credit unions are there to fill that gap where some of the community banks have abandoned and gotten swallowed up.
[00:17:00] Ray Sjolseth: So, as an example, I have a client who, he's a plumber. He's been a plumber for six years. He's got a good chunk of money in the bank. He's got great credit. He wants to buy his first property and he wants to buy a two to four unit. Would he be a good fit for something like this?
[00:17:20] Mark Rotter: That is a perfect candidate for us. Somebody who has a small business and shown that they, they, you know, they have the ability to run a business. Or maybe you, you've just been a real estate agent or you've had another W2 job and you're looking to get into that.
[00:17:39] Mark Rotter: But we love small business owners, particularly small business owners with trade skills. Because you know, if, if, if guys like me when, when we buy a rental property, every time something happens, I'm calling people but people with some, some good. Trade skills behind them. They can manage those properties and get things done and keep the costs down.
[00:18:04] Mark Rotter: You know, I'm the most incompetent person in the world when it comes to keeping a home and fixing things around the house, so
[00:18:11] Ray Sjolseth: I love it. Okay. So you're the c e o of this organization. How do you guys work and where do you come into this?
[00:18:20] Mark Rotter: Sure. We, we have, we have 12 lenders scattered throughout the country and some of them work remotely.
[00:18:28] Mark Rotter: So, and like I said, we have a hundred credit unions that we work with, and really there's two paths of working through us. The first is you have a local credit union who's one of our clients and, and, and we help support them in the whole back-office operation. One of the nice things about.
[00:18:49] Mark Rotter: Cooperatives that credit unions are is cooperatives tend to cooperate with each other. And so, so a company like mine doesn't exist in the banking world, cuz could you imagine a bunch of bankers getting in the room collaborating with each other? So, but credit unions work with each other to form companies like us. So we hire credit analysts, and we have software and servicing platforms and loan docs. So you could work with a credit union. Directly and then it, all the back offices funneled with us. And, and that's probably about half of our business. And then the other half of our business is people contact us directly and then we match.
[00:19:33] Mark Rotter: We we're essentially the lender and you work with one of our salespeople to put you through the entire process working with a credit union that lends in your area. So, so some of the, sometimes you, you may get matched up with a credit union that you may already be a member of, or it might be a new relationship or somebody that you never heard of, that you weren't aware that they were even an option and lending in your marketplace.
[00:20:02] Ray Sjolseth: Got it. Okay. So two things. Number one, what am I not asking you about your business that I should be asking you about your business?
[00:20:11] Mark Rotter: One, one of the concerns of credit unions is the size of credit unions. That's sometimes people think of us as tiny or not sophisticated. Which is, which is, you know, that's sometimes I'll get hit with and, and is particularly for your more veteran real estate lender.
[00:20:32] Mark Rotter: You know, the average credit union is only about 250 million in assets. When I said that we work with over a hundred credit unions. As part of our process, we bring together credit unions to fund loans so that they can lend in a much bigger. It's much bigger than their asset size. Particularly if you're in a major metro area, you know, a million-dollar property, as you know is not a big property in in Chicago, in, in New York and other places.
[00:21:07] Mark Rotter: Sure. It can be a, it can be a condo. But you know, to take that on we, we collab, we bring the credit unions together to collaborate on that. The other piece is sometimes people think something might be too big for the credit unions. In today's market, I get nervous if something is maybe above 15 or $20 million.
[00:21:30] Mark Rotter: And we've actually funded many projects larger than that. But today, liquid, you know, the marketplace isn't what it used to be. So so we, we, we would, you know, probably 15 million is, is our comfort level right now.
[00:21:44] Mark Rotter: Historically you know, we, we've always, we've always done well and we've always done a broad base, but, you know, if we could talk about the current marketplace for a minute because that is not the, it is not the marketplace of a year ago. So if you don't mind, I could
[00:21:58] Ray Sjolseth: Yeah, please
[00:21:59] Mark Rotter: so, you know, one of the differences in that we see out there, I, I'm going to kind of lift up the covers of the financial institutions today. Nobody. Even credit unions, but particularly banks, nobody ever says, we're not lending today, but there's a lot of lenders behind the scenes who are saying, we're not lending today.
[00:22:26] Mark Rotter: And what they do is they raise your interest, they raise the interest rates or tighten the box to make it so they're not lending. And that has one that is really comes down to one thing and it, and it's not demand for loans. It's liquidity concerns. You know, and some people put a cover on it like, oh, we're concerned about the marketplace, we're concerned about this.
[00:22:50] Mark Rotter: No, they, they're concerned about their own liquidity. So if you get told no from somebody today, it might not be that you changed. It might be that your lender changed. And if you really look at their, what, what, who they are, and look at the financials, like I look at their financials, you can quickly see, oh, they're really under the crunch when it comes to liquidity at the institution and having the money to lend because you know, de we we're not getting that government money like we used to from the last few years.
[00:23:30] Mark Rotter: You know, I, I made a joke the other day. I said, you know, all we really need is another pandemic to fix everything, you know, and get the money out there.
[00:23:38] Ray Sjolseth: Yeah. Turn on the printing press.
[00:23:40] Mark Rotter: turn on the printing press again.
[00:23:42] Mark Rotter: But I don't think that's I don't think that's happening, or it should anytime soon.
[00:23:47] Mark Rotter: But yeah, we're seeing a lot of people out there. Getting turned away and frustrated because they say, and, and, and that's where you really have to, as, as a real estate investor, you have to understand and be able to have that blunt conversation with your lender and say, are you really lending today?
[00:24:07] Mark Rotter: You know, what are you doing? Tell me like what I, I haven't changed, but, but you seem to have. And, and probably today is more important than ever to shop around to make sure somebody is a fit for you today. And they're a fit for you in the future. And I say the future in the next year or two because like once again, two years ago when rates were 3%, oh, I'm gonna shop around.
[00:24:33] Mark Rotter: Maybe one of 'em is three and a quarter, maybe one's 3.15. It's all really low in today's world. You can, depending on that liquidity of financial institutions that you're talking to, you can see large swings and big differences in the interest rate market.
[00:24:52] Ray Sjolseth: So interesting. Thank you for sharing that with us and for everybody listening. Remember, it's sometimes it's, it's not you, it's them, right? Like that's one of the take takeaways from as a, as a market shifts and the news feeds us all sorts of BS information and all these different things. Sometimes there's just things happening behind the scenes that make decisions.
[00:25:12] Mark Rotter: Absolutely.
[00:25:13] Mark Rotter: It's there and, and in today's environment, there's a lot more going on behind the scenes with your lender than ever in the past. So, so you're, you're seeing different attitudes. But it, but it's not, it's not them. It's not the mar, it's not you, it's not the marketplace. It's not your deal.
[00:25:32] Mark Rotter: It's them.
[00:25:33] Ray Sjolseth: I love that. Mark, how does somebody get started with you guys? Sure. What is the first step?
[00:25:39] Mark Rotter: Sure. The easiest way is to go on our website, mbfs.org, and you can connect with us directly on there. Get, and, and then we'll, we'll, we'll get back to you right away and get you connected with a local credit union lender.
[00:25:55] Mark Rotter: And if we don't have somebody in your marketplace, we know who is lending in your marketplace in the credit union world. And we'll, we'll introduce you to from them. We do that all the time. And then the other pieces, LinkedIn. Were very active on LinkedIn member business financial services or myself, mark Ritter and, and we can get you moving from there.
[00:26:17] Ray Sjolseth: Mark, if somebody walks away with one golden nugget from our conversation today, what do you think that should be? Whether it's something we've already spoken about or just something that comes to mind.
[00:26:26] Mark Rotter: Shop around your lenders and under, and if somebody doesn't want to answer the tough questions about who they are.
[00:26:35] Mark Rotter: Walk away and keep shopping around. In, in this, in commercial transactions and these investment transactions you, you are on equal footing with them. So don't be afraid to ask the hard questions. Don't be afraid to negotiate and find somebody who, and find somebody who fits your box and what you're doing.
[00:27:00] Mark Rotter: Many times people look at a lender, somebody says no, and the first thing they'll do is go default to one of these hard money lenders and really expensive interest rates. And, and, and that sometimes can be a death spiral. You know, there's lenders out there for everybody. And so maybe you gotta shop around a few times but find that lender that's a good fit for you, and it's going to be very open and transparent with you.
[00:27:26] Ray Sjolseth: I love it. That's great. Everybody, the links will be down in the description. You can grab 'em, send Mark a LinkedIn request. And Mark, thanks for joining me today. This was awesome.
[00:27:37] Mark Rotter: I appreciate it. I enjoyed the conversation.
