All Forum Posts by: Ethan Gidcumb

Investors, interest rates for short-term loans are on the move! Here's a quick look at the recent trends across different markets:

Orange, CA: Down by 1.43%

Pinellas (Tampa), FL: Down by 0.78%

Dallas, TX: Down by 0.32%

Los Angeles, CA: Down by 0.23%

What's driving this?

A study by Geraci LLP, analyzing data from 125 lending companies, shows that the private lending industry performed significantly better in the first four months of 2024 compared to the same period in 2023.

When it comes to short-term loans—like fix-and-flip, construction, and bridge loans—there was a notable increase in production from 2023 to 2024. February alone saw a 46% jump, while April followed with a 38% increase in loan volume.

Current Interest Rates

On average, interest rates nationwide hovered between 11% and 11.5% from February to April 2024, with an average loan amount of $460,000. The good news? Rates seem to be steadily declining.

Top Markets

California, Florida, and Texas are leading the pack as the hottest markets for short-term loans.

Even with the recent stock market chaos, there's some bright news for mortgage companies. Over the past 5 days, stocks like Rocket Mortgage have soared by +16.47%, and LoanDepot has jumped by +10.26%, thanks to falling interest rates.

On the flip side, homebuilder stocks had a bit of a rough time but are starting to bounce back this morning. Over the last 5 days, LGI Homes dropped by 13.91%, Tri Pointe Homes by 9.91%, Toll Brothers by 9.25%, and Meritage Homes by 8.94%.

What is there to look forward to?
The 30-year fixed rate dropping could reignite demand in the housing market.
As we’ve seen with homebuilder stocks, there’s definitely potential for gains as the market stabilizes.

Hi @Taylor Robertson,
To answer your original question, most lenders (private and conventional) will refinance an investment property up to 75% Loan to Value (LTV) of it's current value. This can change depending on the lender but that is what I have seen across the market in the time I've been in the industry.
My advice on how to structure the deal is to find a purchase price that is as low as possible for your pockets, but also makes sense for your family because you'd never want to do them dirty. Getting it at a low purchase price means more profit for you and strength in the investment for other lenders. The only thing you have to be aware of is that most lenders have a minimum loan amount of $75k-$100k so a smaller deal may limit you to the number of lenders available, but there'll still be something out there for you.
- Like Devin Peterson said, buying it in all cash would be great for your pockets on the refinance, but that may be a tough ask from you. 
- Like Robin Simon mentioned, most lenders will want a BPO/Appraisal to close anyways, so this will be a great check to make sure it's worth your time. 
- Patrick Roberts gave some really great advice! If you choose to use a DSCR loan, the refinance will be qualified based on the cash-flow of the property. So you won't have to upload any documentation for income and employment. DSCR loans are most impacted by the property's cash flow and your credit score.
- Derek Brickley brought up a great point about Seasoning requirements. Seasoning is the amount of time you need to wait to refinance a property if you borrow money to purchase it in the first place. Seasoning periods, or the time you need to wait to refinance, is different depending on who you are working with. Most commonly, I see that clients can do a rate and term refinance after 30-days of ownership but most people wait 6 months to be eligible to do a cash-out refinance. 

I know this was a lot. It looks like you have a ton of great resources to learn on for this exciting opportunity. Good luck!

Hi @Agustin Farias, my go-to bank would probably be Best Lending Co. I've heard they're pretty good at helping clients with the BRRRR Strategy.
Like the other members mentioned, DSCR loans are the most common method utilized to pull equity out of a project. This can be for many reasons, such as:
- Closing in your LLC keeps the property off of your personal credit report,
- the loan is qualified based on the property's ratio of rental income to expenses,
- And, the closing process is easier and less stressful as less documentation is requested (i.e. No DTI ratio or tax returns are requested to close, among other items)

Hey @Rene Vizcarra

I'm sorry to hear about the situation with your contractor. I may be able to help you out. I've sent you a direct message

Hi!

One thing I run into often are borrowers who are looking for loans based purely on the After Repair Value of a Fix and Flip investment. Because of common marketing strategies by the industry, their expectation is that a lender will provide a loan at 70%-80% of the value of the asset after its been repaired, upfront. In my experience Loan to After Repair Value (LTARV) is most commonly used as an Underwriting metric to ensure "the juice is worth the squeeze", or in other words, to make sure the project is worth the investment. I find that it's very rare that a lender will actually close at this amount of leverage because they would typically be putting up a much larger amount of funds than the property would be worth at the time.

Has anybody actually worked with a lender that did fund based off of the LTARV? What were their terms?

Thank you,

 Thank you for the helpful input Jay!

(Before you start reading, I think the overarching theme of this question is that the definition of a Hard Money Lender and Private Money Lender has changed throughout time. That can be the reason some people have differing opinions on how each group should operate in the real estate investment space. There was a lot of information I didn't mention in this post since each company and individual can operate differently so if there was something I failed to mention, please feel free to leave a comment).

The terms Hard Money Lender and Private Money Lender can be confusing because people sometimes use them to mean the same thing. Here is how I see it:

Private Money Lenders:

• Companies: These companies give loans based on the value of the property and the borrower's financial situation.
• Individuals: Wealthy individuals usually care most about the property and the borrower's experience. If both are good, they might give the loan. Individuals and small groups of investors can be more flexible. They have their own rules and might take a share of your profits instead of charging interest.

Hard Money Lenders:

• Nowadays, hard money loans usually come from bigger companies and are more regulated, making them similar to loans from Private Money Lending companies. However, some people might describe a Hard Money Lender like an Individual Private Lender, while companies calling themselves Hard Money Lenders might follow the rules of a Private Money Lending Company.

(To avoid confusion, I ask clients what kind of lender they are looking for and what is important to them. For example, if someone has a low credit score but a great investment deal, I might suggest finding an Individual Private Lender who cares more about the property than the borrower's financial status.)

Differences:

• Hard Money and Private Money Companies: These usually follow strict rules and have more money to lend because they have many investors.
• Individuals: They might offer more flexible loan terms since they decide the rules themselves. They usually have less money to lend, so they are more selective on which projects they finance.

 Thank you for the ideas Bradley!

What is a hard money loan?

A hard money loan is a type of loan used by people who want to buy houses but can't get regular loans. This might be because their credit score is too low or the house needs fixing.

Although each lender can make their own rules about how to qualify a borrower and their investment, like needing a certain credit score; I believe that flexibility is the best thing about hard money loans since it provides each individual with vast amount of options.