Episode Summary:
In this episode, Jack & Craig explore the evolving market of fix and flip lending. It covers topics such as the emergence of institutional investors and securitization, the role of insurance companies in buying loans, and the challenges faced by originators in changing market conditions. The discussion also delves into the impact of market volatility on main street borrowers, including changes in lending criteria and the availability of cheap capital. The episode emphasizes the importance for borrowers to stay informed about these dynamics to avoid disruptions in their lending process.
Overview of Episode 4
Craig and Jack discuss the rapid transformation of fix and flip lending. Above all, they explore how funding sources and borrower options have expanded in recent years.
From Local Lenders to Institutional Investors
Initially, fix & flip lending was dominated by local hard money lenders offering high-interest loans. Accordingly, these lenders focused solely on asset value rather than borrower qualifications. Afterward, institutional investors entered the market, bringing new capital and reducing rates.
How Institutional Money Changed Fix & Flip Lending
Since 2015, Wall Street has increasingly invested in fix & flip loans. As a result, private equity firms and secondary markets emerged. Not only did this create more funding options, but it also standardized lending practices nationwide.
The Impact of Securitization
Securitization revolutionized fix & flip lending. Companies like Avi and LendingHome secured revolving debt structures, enabling cheaper capital access. Consequently, borrowers benefited from competitive rates while lenders expanded their operations.
Challenges for Lending in 2022
Rising interest rates in 2022 disrupted the fix & flip lending market. For example, securitization costs surged, and secondary markets became less favorable. As a result, some originators exited the market or faced significant challenges.
The Resurgence of Local Balance Sheet Lenders
Despite industry changes, local balance sheet lenders gained relevance. Unlike larger firms, they rely on stable capital sources and prioritize relationships. This approach ensures consistent funding during volatile periods, benefiting fix & flip investors.
Future Trends in Fix & Flip Lending
Looking ahead, the fix & flip market will likely see improved margins due to reduced competition. Additionally, as demand for affordable housing grows, investors may shift focus from rentals to flipping properties. Strengthening lender relationships remains crucial during this period.