A Macro View of the Private Lending Market and What it Means to Flippers

[Matthew Nixon]

Big hedge fund backed companies like Blackstone Group and Colony Capital are getting into lending... Why Now? What does this mean for flippers who use private financing to purchase distressed properties? What type of ripple effect is this going to have on local lenders who aren't built to compete with the low rates of the investment giants? 

Here are a few of my thoughts and takeaways after reading. 

Why Now?

• They've spent the last few years building Billion dollar rental property portfolios when there was an abundance of distressed inventory.... These days not so much. 
• Big pockets and access to cheap capital makes it possible for them to scale the business on a national level. 
• The demand for the product is there. Banks have been unwilling extend credit on speculative investments such as flips. This has lead to increased demand for non-bank financing, and in-turn local private money lenders have been reaping the reward.
• Average gross profits for flips are up y/y and at its highest point since 2011

What does this mean for flippers and local hard money lenders?

• In big markets like southern California, the hard money market is crowded. You may see some of the smaller companies start to fall by the wayside and move to a different niche. 
• Flippers will benefit as hard money rates are likely to get even cheaper. 
• For the smaller companies speed and service will be the competitive advantage they rely on to obtain and retain customers

One point that was raised in the article that I found interesting was... Will the increased competition result in relaxed underwriting and loan chasing? What kind of impact could this have on the real estate market.

Check out the link below and let me know what you think!

Link