How did you fund in 2008-2010 (private lenders drying up)>

[Joe Cassandra]

I was in college in 2008 and missed RE then...

How did you fund deals then?

My private lenders are telling me they're not lending right now with RE prices set to drop.

I'm guessing soon deals will be plentiful but not funding...

I have cash for a few down payments, but curious beyond that

[Jeff S.]

We started lending in 2010 and the pre-pandemic differences are profound. As @Joseph Cacciapaglia said, there was no money after the 2008 crash and I’m not even talking about the banks. Private/hard money lenders were not nearly as common then as now but great deals were plentiful.

We could go to a real estate club in 2010 and there would be 15 flippers in the room with terrific deals by anyone’s standards, then and now, and just one or two lenders. You had to be very careful – choose only experienced rehabbers who knew how to find good deals, could rehab sensibly, and knew how to sell without being greedy. Prices then were still falling but beginning to stabilize. It wasn’t until around 2012, and then when the hedge funds started buying foreclosures a few years later, that prices were clearly on the rise.

We did not loan at any price before any of this. Housing prices were just too unstable and unpredictable from about 2008 to 2010. I assume we are heading into that exact situation now. As a result, we are standing down for a while until the dust settles and our economy shows some stability. Could be months, but more likely years.

Within the last five or six years private lending has exploded. There are numerous billion dollar funds, many backed by Wall Street, and the competition is fierce. Even before the pandemic, rates were dropping to unsustainably low levels, in my opinion, and it was hard to foresee anything but a shakeout. I thought it would come naturally from a decline in rates and a lack of competitive advantage among the larger lenders, but it’s clear the pandemic, and what’s likely to be a global recession, is now the driver.

There are already a handful threads here from lenders asking how they can foreclose on the seconds they made. Few heeded the warnings about loaning in second position. Many/most of these lenders, unfortunately, will be wiped out -- especially since asset values will likely fall. The next shoe to drop, will be from first position lenders. Hopefully, those who made sensible, low LTV loans, to knowledgeable borrowers will come out ok. Many still, will be hurt.

Not naysaying. This is just my observation having gone thru it once already. I know everyone is chomping at the bit, expecting great deals to fall from the sky, but now is a great time to be very careful, @Joe Cassandra.

Since no one knows what a good deal is now, and I’m talking flips, I’d be very leery of buying or loaning on anything until the dust settles. Anyone who says they are still loaning, full-steam ahead, rah rah rah, let’s connect, is trolling.