TheMReport — News and strategies for the evolving mortgage marketplace.
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30 | M R EP O RT FEATURE teristics, such as strong population growth, diversity of employers and job growth, excellent school systems, good city infrastructure, and friendly property tax rates. Local knowledge in the market is critical, but that doesn't mean you need to be born and raised in a certain city to be a success- ful investor there. The availability of market data and investment property marketplaces has never been greater. So if you're looking to grow your business but are having chal- lenges in the big Tier 1 cities, take a look off the beaten trail for cities that exhibit the characteristics that support your investment goals, do your research, and utilize the array of reputable online market- places and start networking to find a great team to support you with local expertise. Choose the Right Financing Partner O ver the past 10 years, the availability of financing for investment properties has significantly changed. What was once an industry bifurcated with only two real options (banks or small local private lenders) has matured with a third option— large national private institutional lenders. These national lenders are typically backed by deep capital sources like private equity firms, hedge funds, and REITs. This is great news for investors, because not only has the availability of financing increased dramatically, but costs have decreased as well. These private lenders are prov- ing that fix-and-flip, ground-up construction, and rental property financing done properly offers stable and predictable returns, and we see more and more entrants coming into the market. In years past, an investor who wanted to flip, build, and rent houses, needed three different lenders to get the right products. Today, lenders and a handful of nationwide private lending peers offer a complete end-to-end product suite of options for all investment purposes. Successful investors should have time to focus on finding deals, manag- ing projects, and building their network, because they have the confidence that their lender part- ner has the right product at the right price to help them quickly accomplish any goal. In Q2 2019, the volume of fi- nancing for fix and flips reached a 13-year high, and homes purchased by an investor with financing rep- resented 41% of all homes flipped, according to ATTOM. This is a steady uptick over the past few years, but still remains far under the 65% of flips that were financed pre-2008. We meet many inves- tors using all cash to purchase properties, thinking their options are limited to a high-cost provider who erodes profit margins or an option with a frustrating and cumbersome process. These cus- tomers are pleasantly surprised to learn there are new lenders who have far lower costs than they're used to, simple processes, and common-sense underwriting. Another great evolution in recent years is the variety of loan products available to investors. From lines of credit to flexible pre-pay and term options to hybrid build-to-rent one-time close offerings, the best lenders are listening to their clients and grow- ing products to fit their needs. Offering investors flexibility is the reason we created one-time close Fix2Rent and Build2Rent products. These loans allow an investor to finance the rehab or construction project with a 13-month interest-only loan, and then convert the loan to a 30-year, fully amortizing rental property loan upon construction comple- tion and renter occupancy. This process saves investors time and money by avoiding going through a second closing and gives peace of mind having the long-term rental loan already in place day one. The investor maintains flexibility because they can opt into the permanent financing and hold a property as a rental or opt out and sell the property if plans change. As you evaluate your business goals, consider your capital stack options carefully and explore the variety of new financing options available. You may be pleasantly surprised what you'll find. As we head into 2020 and the demand for investment properties continues to outpace supply, we're faced with a highly competitive market where investors need to act quickly if they find a desirable property. But don't let a com- petitive market discourage you from pursuing your dreams! Stay flexible, consider heavier rehab opportunities, evaluate ground up construction projects, and con- sider adding to your rental portfo- lio with new Fix2Rent products. Explore new markets, do your homework, partner with a great team, and grow your business! Your lender should be more than just someone you make your monthly payment to. They should be deeply involved in understand- ing your business goals, strategy and a partner beside you from beginning to end. . JOSH CRAIG is the CRO for Lima One Capital, the nation's premier lender for real estate investors. For more information, visit LimaOne.com or call 800.390.4212. A ground-up construction project is far different than a light rehab, so we encourage investors who are expanding their scope to partner with seasoned professionals who can help navigate the new territory. Investors can quickly get over their skis by taking on projects where they don't have expertise, and lenders recognize this risk, so they protect themselves with lower leverage and potentially higher pricing for teams that don't have adequate experience.