Fix & Flip Rates Going Up

Learn to navigate financing options as the market evolves. Here’s what you need to know.

In the past 12 months, short-term US Treasury rates have risen nearly three full percentage points. It has taken some time, but now short-term fix & flip lenders are finally responding and looking to pass through those increased costs to the borrowers. But not all fix & flip lenders are created equal, and some are better positioned to keep rates lower for their borrowers than others. Understanding these differences can help to save you or your clients a lot of money.

It all depends on where your fix & flip originator’s funding comes from. Lenders generally fit into four categories, and many lenders use a combination of these sources.

Wall Street – hedge funds and insurance companies have had a healthy appetite for the high yields offered by fix and flip loans. Companies such as Toorak, Roc Capital, PeerStreet, AlphaFlow, and Constructive Capital either table fund loans brought to them by originators or purchase the loans from originators within a few weeks after the loan closes. As a borrower, your client wouldn’t even know that one of these companies is behind the funding of your loan, unless they ask. These companies rely on the bond market, and that market has become extremely volatile in the past 120 days. Lenders that rely on Wall Street for their funding are struggling right now, and they have no choice but to pass along the full brunt of higher costs to their customers.

Bank Capital – Some fix & flip lenders borrow a portion of their capital from banks. Bank rates tend to follow the Federal Reserve. The cost of bank capital is up, but not as much as Wall Street. Also, banks borrow most of their money from the American public through savings accounts, CDs, and money market accounts — and those rates haven’t risen much. Lenders with bank capital haven’t been hurt as badly as lenders who rely on Wall Street. These lenders may raise their rates some, but not as much as the Wall Street folks.

As I said before, many lenders use a combination of these sources. They may be a high-net-worth individual with some bank capital. They may have a pool of private investors, but they sell all of their loans to Wall Street. Call your lender and ask them how they’re funded. It’s not rude – it’s due diligence.

The real estate market is softening, and the capital markets are in flux. It’s time to touch base with your lender and see if their loan program has changed, too.

Dominion Financial Services is a national private lender, currently offering 7.99% fix and flip interest rates, no appraisals, and a 48-hour close. Visit their website to get pre-approved for a Dominion Financial Services Investor Line of Credit.

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