How Coronavirus is CHANGING Hard Money Lending (And How to Fund Your Deals)

In this episode, Bill Allen is chatting with LendingHome Director of Strategic Accounts, Ray Williamson, to break down what house flippers and real estate investors need to know as the economy reacts to the coronavirus pandemic… and how to get the funds you need to close MORE deals as the changing market opens new opportunities.

Ray helped build LendingHome from a 50 person outfit to the largest fix-and-flip lender in the industry. He now works with new and experienced house flippers, coaching them on how to use institutional money to scale their businesses. Many clients inside the 7 Figure Flipping mastermind groups use LendingHome to fund their deals.

In this interview, you’ll hear Ray take questions from investors of all levels of experience, live on the call, and give his current “state of the union” update from the lending space. You can learn more at LendingHome.com.

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Question & Answer

Q: With the lending adjustments made on March 23, investors saw loans go from 100% of the purchase price and 100% of the renovation, to 80% of the purchase price, plus additional fees. What caused the purchase price loan reduction? 

Ray: We still don’t know what the cost will be and what the requirement will be when whole loan sales open up. What you have to look at are the Wall Street companies. Instead of investing in fix-and-flip loans, which inherently have more risk than consumer mortgage loans, the Wall Street companies are going to be able to get a good quality loan that they can buy for 70 or 80 cents on the dollar with the same quality. Why would they pay $1.02 and $1.03 for good quality when they can get it at 75, 85 cents on the dollar? Once those loans dry up they will say, “Ok, let’s reinvest in this fix-and-flip market.”

Q: When will we return to business as usual?

Ray: We anticipate this is going to be a 60, 90, or 120 day run, as it relates to capital markets being frozen. It will take 18 months to get somewhat back to what it felt like in March, as it relates to the trajectory of business and confidence in the capital markets. 

Q: From a valuation standpoint, are lenders still using the current data from the market? 

Ray: Wherever the market data supports, that’s where we’re coming in. Our appraisals are coming in on the low end of the market valuation range, but they are not coming in 5-10% below the range. We don’t anticipate a burst in value. 

Q: For an experienced buyer, you increased your credit limit and you increased your leverage. Have you changed your fees? Where do they sit now?

Ray: The minimum FICO score is 660 now. It was 620. Right now, for folks who have flipped five or more properties in the last 24 months, we’re lending at 80% of acquisition and 100% of rehab. If they’re a member of 7 Figures, that’s 90% of acquisition and 100% of rehab. 

We use a very FICO driven scoring model now. So 660 or better will have one price range. Seven hundred and twenty or better is going to have a slightly improved price range. If an operator already had an origination point structure, we did not change that at all. The loan fee is $1,000. 

Q: Is having previously flipped a house a requirement for getting a loan?

Ray: No, just a qualifying FICO score. 

Q: What funds are buying loans now? 

Ray: There are a lot of local or regional hard money lenders that are still operational, but if you are a lender in the US and you are selling whole loans, nobody is buying them. Unless you’re getting your money outside of the US or through a securitization, and you’re a larger institutional lender, you are not lending money. 

Q: How do you, as a lender, define those five qualifying flips? 

Ray: What we look at is very simple:

  1. The property must have sold in the last 24 months. 
  2. The exit price that you resold the property for has to be greater than $50,000. 
  3. The operator or entity had to have taken the title of the property and held the title for greater than 30 days. 
  4. From the acquisition date to the resale date had to be 36 months or less. 

Q: Is there any interest reserve needed up front for members of 7 Figure Flipping?

Ray: We don’t have a liquidity requirement at all from a lending standpoint. 

Q: Do you look at debt-to-income ratios and tax returns?

Ray: No. 

Q: Can you explain the rehab draw process?

Ray: The rehab draw process is a construction draw process, so it’s basically reimbursement for work done. 

Q: Do you anticipate going back to 100% funding for the 7 Figure Flipping mastermind groups?

Ray: I anticipate it. We are looking to get back to business as usual.

Links & Resources

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This group is where you’ll level up your relationships. It’s where you’ll connect with other serious investors. It’s where you’ll learn how to systematize and scale your business while working less.
If you’re ready to surround yourself with other high-level investors, head over to 7FigureAltitude.com and apply to join.

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