Most real estate investors are generally worried about three questions:
1) Will the lender execute quickly?
2) Will the lender have the funding in place at the time of closing?
3) Will the lender provide me with the best terms?
In today’s mobile economy, shopping around for loans (or anything, for that matter) has become commonplace, even instinctive, and facilitated by the ever-sprawling reach of the internet. Now, browsing for lenders online is a rather facile undertaking. But the problem originates in identifying the lender that best fulfills the above questions. All of them. With so many to choose from, the task can be overwhelming. But here’s why you should start:
Better Terms (Mark-to-Market):
Oftentimes, it’s particularly difficult to know who will be the optimal financing option, especially if you’re not a lender or broker yourself. There’s a learning curve. Nevertheless, much is to be said about metamorphosing environments. Similar to how an employee who stays at a company for a long stretch of time tends to be underpaid relative to one that shifts firms every now and then, substituting lenders can bring about some price competition, and re-negotiating of your terms, simply due to marking-to-market. It’s easy to lose sight of a more competitive market that has developed where prices have been driven down—and easy not exploiting those opportunities.
This is especially true of bridge lending (fix-and-flip loans). Whereas Wall Street is not particularly keen on the paper, namely because it is so short-term, difficult to securitize, and doesn’t fit a cookie-cutter mold of traditional mortgages. That being said, a large influx of competition has stubbornly created a highly dynamic and competitive landscape. This is specifically due to low interest rates, where lenders are scrambling to achieve high yields. For flippers, this means higher LTVs, lower rates, and faster closings. Right now, this is the most competitive bridge program in the market. Not being complacent can save you a lot of money.
Changing Strategy:
Another reason to look at other lending partners is for the shear reason that your circumstances have altered since you started. For instance, bridge loan borrowers often get cash out loans, what I will call “true hard money”. These aren’t necessarily fix-n-flip loans, but rather a cash infusion for an asset-rich borrower that has come into some liquidity issue. The problem with this is these loans are often one year, so paying more points every year turns out to be costly.
In retrospect, this may be inevitable at inception. But oftentimes, credit scores and situations will improve. Perhaps the property is now rented. In such a case, a lower rate can be achieved through a rental program for a longer period of time. What I’m saying is it’s important to re-evaluate your strategy and personal conditions. The preceding point was that markets need to be reassessed. The same is true for your borrowing needs on a macro level. To emphasize the point, sometimes equity grows significantly over a stretch of a few years. Reassessing then can allow you to refinance, pull cash out, and invest that into another property. Matching a new lender to your new qualifications is key in this instance.
Grass May Be Greener:
I know people who are terrified of switching lenders. Fear of the unknown.
Have you ever stopped to think at all the inefficiencies that are going on with your current lender? Are tax returns really necessary on asset-based loans? Why are you waiting another 2 weeks for the lending partners to wire funds into the account? Could you put less money down, with 100% rehab financing? Will new lenders let you pick your attorney, insurance, and title company?
The grass is not always greener on the other side. But sometimes, the other side has sprinklers. It most often does. Think about it on a mathematical basis. What are the chances that your lender who you’ve used for a myriad of closings, is the most competitive, out of all the players out there? Pretty low. Now what is the probability that one of hundreds of lenders out there (excluding yours) is the most competitive? Much higher than yours, simply based on numbers.
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Written by Warren Ifergane.
To learn more about Ifergane Consulting Group, or to submit a deal for consideration, contact info@iferganeconsulting.com, or call 954.798.0726.
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Great post
ReplyCheers
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