Hard money comes easy as Wall Street funds home flippers

Hard money comes easy as Wall Street funds home flippers for Arizona Home Loans

Real estate buyers seeking Arizona Home Loans to renovate and flip U.S. houses are getting help from some of the world’s biggest investment firms.

Colony Capital Inc., Blackstone Group LP and Cerberus Capital Management are among the companies that have started making bridge loans to investors who buy homes to sell them quickly for a profit. Borrowing costs -- traditionally the highest in residential lending -- are tumbling as the firms compete for customers.

The foray represents a deepening bet on the housing market by Wall Street-backed companies, many of which have built rental-home empires during the past three years and started specialty-lending businesses to finance smaller investors. Big firms with deep pockets and access to cheap capital may have an edge over local private lenders that have dominated flipper financing.

 “It’s one of the few highly fragmented businesses left,” said Beth O’Brien, chief executive officer of Colony’s lending business, which started offering the loans last May. “If someone can do it nationally at scale, it’s cheaper and better for the borrower.”

Bridge loans, also known as hard-money or asset-based loans, give flippers cash for home purchases and construction with about a year to repay, and are backed by the real estate. They represent an opportunity of about $30 billion in origination annually, according to LendingHome, an online mortgage marketplace that makes short-term loans and sells them to investment firms such as Colony.

Blackstone, the world’s biggest alternative-asset manager, is seeking to make $1 billion of the loans a year, according to Nick Gould, executive chairman of the firm’s B2R Finance unit. B2R, started in 2013 to lend to landlords, earlier this year acquired Dwell Finance, which provides “fix and flip” funding.

Record Profits

Arizona Home flippers are benefiting from rising prices, limited new construction and a shortage of inventory on the market. While quick resales have decreased from the start of the housing market’s rebound, when investors snapped up discounted distressed homes, profits are getting bigger.

The average gross profit for completed flips in the first quarter was $72,450, up from $61,684 a year earlier and the highest in records dating to 2011, according to a report Thursday from RealtyTrac, a real estate data firm. Markets with the highest average gross return on investment included Baltimore, central Florida and Detroit.

Fix-and-flip investors have generally gotten funding from local private lenders as banks have shown reluctance to extend credit for speculative real estate deals. Borrowers are forced to pay high costs in exchange for the quick cash.

Falling Rates Private Hard Money

Since big investment firms have entered the industry, rates have already come down significantly and fees charged to borrowers, known as points, have decreased as well, according to Fred Lewis, founder of Dominion Group, a Baltimore-based real estate firm that has been lending to house flippers for about 14 years.

“Rates historically were much higher, typically 15 percent with three to five points,” Lewis said. “In the last few months we’ve seen deals being done at 10 percent and two points.”

The new lenders are focused on more experienced investors, many of whom have have established companies, rather than the amateurs that proliferated during the housing boom a decade ago. Today’s flippers are more sophisticated after the crash weeded out most of the weaker investors, Lewis said.

“These are ideal clients, with the potential to be repeat borrowers across a number of product lines,” said Randy Reiff, chief executive officer of Cerberus’s FirstKey Lending.

Resource Intensive

FirstKey started offering fix-and-flip loans about six months ago and is just beginning to expand the business. Interest rates generally range from 9 percent to 12 percent for 12-month terms. Borrowers often sell their homes and repay loans earlier, said Reiff, which means it takes a lot of effort to rapidly expand the business.

“It’s resource intensive, and it’s important to have an adequate infrastructure,” he said. “If the regional guys do $50 million of product a year, they could be a major player in their markets. For the larger institutions, that barely moves the needle.”

The hard-money market is getting crowded, which may lead companies to loosen their standards, said Mark Filler, CEO of Jordan Capital Finance, a lender acquired by credit investor Garrison Investment Group about six months ago. His business has more than 300 approved borrowers with credit lines.

“Everybody just jumped in,” said Filler. “The risk is people start to relax underwriting guidelines to chase loans. As this becomes more competitive, there will be more pressure to do that.”

Added Service

A regional company such as Dominion competes on service when it can’t offer rates as low as Colony or Dwell Finance, Lewis said.

“We’re closer to the ground so we can lend higher loan-to-value for Arizona Home Loans and lend it faster,” he said. “If someone calls on Monday, they can be preapproved and funded on Friday. Institutional guys can’t do that.”

Borrowers such as Alex Sifakis, president of Jacksonville, Florida-based JWB Real Estate Capital, are willing to pay more for greater leverage. His firm buys about 40 homes a month and sells half, keeping the rest for rentals.

Dominion gives JWB 90 percent of the home’s purchase price and 100 percent of rehab costs, he said. That compares with 85 percent of both purchases and renovation it gets from lines of credit with institutional lenders, including Genesis Capital, which comes at 9 percent interest rates and two points. Los Angeles-based Oaktree Capital Group LLC invested $100 million in Genesis in January 2014.

“It’s a great thing to have more and cheaper money in the space,” Sifakis said. “It will cause some of these guys charging 14 percent and 4 points to lose a lot of business.”

‘National Platform’

Blackstone’s B2R is focusing on more established borrowers like Sifakis, to whom they extend loans that look more like lines of credit that average $1 million and go to as high as $100 million, with assets cross-collateralized. Rates are as low as 8 percent and one point. The firm also built a technology platform to make the application process faster.

“This is a sizeable and timely opportunity to institutionalize and consolidate an asset class that’s always been a localized business,” B2R’s Gould said at a real estate conference in Miami last month. “There hasn’t been a national platform that has the capacity 

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com

NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

Things to Consider When Selecting Arizona bad credit mortgage lender

If you have bad credit, you will most likely find yourself unable to secure financing for a home mortgage through a bank. Most likely you will need to find an alternative Arizona bad credit mortgage lenders that specialize in bad credit and subprime home loans. All bad credit lenders are not created equal and it is important to select carefully to get the best deal.

If you have bad credit, finding a loan from a traditional bank can be difficult. Intense regulations by the federal government combined with over-cautious banks has led to the 2010 Dodd-Frank Act and a host of new rules regulating the mortgage market. In addition to new regulations, banks are still hurting from the housing crash of the mid-2000s. Not only were there losses from foreclosure, but also serious and founded allegations that banks knowingly sold bad subprime loans to investors as well as giving out loans to very risky borrowers. Several major banks had to pay out billions of dollars to settle cases of financial fraud during the financial crisis. These factors have led to banks to resist efforts to open up lending to borrowers with bad credit.

This lack of bank financing for borrowers with bad credit has led to new dynamic in the housing market that makes it almost impossible for borrowers with a low FICO score to obtain a home mortgage. However, a home mortgage is one of the best ways to help rebuild a credit history. Also, nearly one quarter of Americans have a “poor” credit score, meaning it is below 620. The restrictive lending climate has made it almost impossible for approximately 25% of Americans to secure a home loan.

The void in subprime lending from large banks has been filled by a number of Arizona bad credit mortgage lenders that are comprised of hedge funds, private-equity firms, and foreign banks. These investors are quite literally spending billions of dollars to help fill the subprime lending void. But not all of these firms are there to help. It is important to consider a number of factors when selecting Arizona bad credit mortgage lenders.

How to Evaluate Arizona bad credit mortgage lenders
 

When you are looking for a bad credit lender in Arizona, it is essential that you do your homework to find a legitimate, legal lender. A few things to consider when selecting your private lender:

• Where is the firm based? This is especially important because different states have different real estate laws and licensing requirements. Ideally, you want a lender that is based in your state to ensure that they know the ins and outs of law pertaining to local real estate transactions.
• Where is the funding coming from? If it is a foreign investment company or bank, you need to also do some further research on how stable the money source is. In addition, depending on what foreign bank the money that is funding your loan comes from, it may go towards causes or organizations that are against your beliefs. You may also want to think about how likely it is that the firm will sell your loan to an investor or investment group. Although a sold loan is not inherently negative, it is possible that your loan could be sold to a less stable third party.
• Who is in charge of the firm? The firm should be headed by a licensed broker who is knowledgeable about state and federal mortgage laws.
• Do I like the agent I am working with? This may seem trivial but it is ultimately a very important question to ask yourself. You will need to work with your loan agent very closely and trust his judgement and character. It is important that you can trust him and that he is honest with you.

Finding a lender you can trust is key to making your home ownership dreams come true.

Talk with a financial professional, mortgage broker, or real estate agent to learn more about various Arizona bad credit mortgage lenders. A good recommendation combined with thorough research can help you find the best lender for you and your family.

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com

NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

How to buy a house with bad credit in Arizona

How to buy a house with bad credit in Arizona: Analyzing the Risks and Benefits of a Sub-Prime Loan

Sub-prime lending and loan types that have been blamed for triggering the housing collapse in the mid-2000s. However, with more and more borrowers wondering how to buy a house with bad credit in Arizona, these loans are making a comeback. Many experts are wondering if tougher regulations can keep them safer.

Borrowers with bad credit or even credit blips are often turned down for home mortgages by traditional banks. Some bad credit borrowers have been thwarted for years by banks that have virtually shut down mortgage lending after the financial melt-down and housing crisis in the mid-2000s. A growing number of these individuals that are deemed “too risky” or credit impaired by traditional banks are asking questions like how to buy a house with bad credit in Arizona. With the right lending company, many are finding that this is not an impossible task.

New sub-prime loan products are hitting the market almost daily and helping to answer the question of how to buy a house with bad credit in Arizona. Unlike some of the more risky loans given out by banks in the early 2000s, the new sub-prime loans are more heavily regulated and require more documentation. They require down payments as well as documentation that the borrower can make monthly payments. In addition, some reformed sub-prime loans are backed by the government and may even have lower interest rates (at least initially) that traditional mortgage options.

There are several types of sub-prime loans including adjustable rate mortgages, hard money loans, FHA loans, and a number of other private loans offered by equity firms and private investors. If you are in the market for a sub-prime loan, it is important to know exactly what the terms of your loan are and to be smart about the type of loan that you choose.

Danger, Beware, Danger – Avoiding Risky Arizona Mortgage Lenders

If you are in the process of navigating the sub-prime mortgage market, make sure to find a mortgage broker or lending firm that has a good reputation. Foreign and domestic investors are pouring billions of dollars into the sub-prime lending market. While there are many, many reputable private equity firms, there are others that will take advantage of the desperation of a borrower with bad credit.

When you investigate a lending firm, make sure that they operate under a valid broker’s license and are qualified to offer the loan products they sell. This is especially important if you are working with a foreign investment firm or a private equity firm. When they are helping you figure out how to buy a house with bad credit in Arizona, the firm should discuss more than just the interest rate with you. You should also know what your loan is called, the exact terms of you loan, the interest rate, and your estimated monthly payments including interest, taxes, and insurance. You should also be asked for some proof of income to insure that you are able to make your monthly payments. If you have bad credit, you will most likely pay more for the loan in terms of interest, generally about 6 to 9 percent but the rate should not be near the usurious loans prior to 2008, when rates often exceeded 15%.

Once you are offered a loan product, you should sit down and really look at your monthly budget. Think about if you will be able to make the monthly payment. If the answer is yes, then you should also consider your long term goals as well as your credit history. If you have bad credit, it is important to think about if this will change. On time mortgage payments are a great way to rebuild your credit and you may be able to refinance to a lower interest rate in the future. Also, consider if the home you are buying will be a short or long term investment and estimate and profit you may make, after the higher interest rate is taken into account. Your broker should be able to give you detailed fee sheets with different financial, down-payment, and interest rate options so you can see all the numbers in black and white.

Stop wondering how to buy a house with bad credit in 

Arizona and start making your dreams come true.

Although it is important to make sure you know what you are getting into with a bad credit home loan, it should not scare you away from purchasing a home. Many Arizona Home Loan lenders and equity firms are there to lend a helping hand to purchase your dream home. Making sure you are aware of all the financial ramifications will help you make the right decision for you and your family. Contact an Arizona mortgage broker or equity firm to get started today. Their licensed mortgage professionals can help you analyze the risks and benefits of sub-prime loans and choose the right product for your home purchase.

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com

NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027