Giant hedge funds keep pushing their way deeper into the real estate industry. Now their investment property mortgage arms and conduits want to dominate the fix and flip, and hard money business. But what might they be covering up?
Hedge Funds Want to Control it All
You can’t blame them: it’s great to be the biggest player in their respective field. It comes with a lot of perks. Last year, giants like Colony, Cerberus, and Blackstone began forming new mortgage firms aimed at serving real estate investors. They began rolling out new loan programs to free up equity in rentals, and to buy more by leveraging blanket and bridge loans. Now some are forging their way into the hard money and fix and flip space. They are even buying up other mid-sized national and regional lenders.
National vs. Local Lenders
Large, national mortgage lenders can be beneficial. However, local and regional lenders also have their pluses for real estate investors. Part of these advantages come from their leanness. Others; from their local market expertise. Huge lenders are getting better at collecting and managing big data, but they still lack the local market knowledge your hard money lender down the street has.
A local hard money lender knows the individual neighborhoods you are working in. They probably know the individual houses you are working to flip or convert to rentals. That comfort can enable them to make higher LTV loans without extra risk. They may also be able to offer better terms and loan features because of this. Despite what some might say; they are very efficient. Big hedge funds might keep pushing for regulatory changes and higher costs of doing business on the back-end to squeeze these guys out. For now, there are certainly those that can turn around loan commitments in a few hours, and fund hard money and rehab loans in a couple of days.
Personal Relationships
Winning in the real estate investment landscape still greatly relies on relationships. Now you may not be having afternoon tea, or weekend home barbeques with your hard money lenders, but relationships do count. It’s easier to build relationships with local lenders that you are doing regular business with. You deal with them frequently, and you matter more to them as you are a bigger portion of their business. The national guys don’t need you. This can all go a long way when it comes to getting hard to place loans done. It can also make a big difference when things don’t go as planned. This might be some local market quirk that pushes your resale past the six month due date, or getting a hard money loan done on a condo. Small, local lenders can make common sense decisions and exceptions.
The Perks of New Lenders
Still, large new hedge fund backed mortgage lenders do have their lure. They are focused on volume and efficiency. That means they have lots of money they need to put to work, and they can offer lower interest rates – at least in theory. Those that are now offering credit line style facilities may definitely help some investors become more efficient. That can help their bottom line, and can make investing more pleasant.
However, it isn’t for everyone. While these new breed of lenders may definitely offer an easy process for qualified investors and investment firms, their demands can keep newer investors blocked out. Some new loan programs are based on net worth. Others are contingent on establishing a sizable capital reserves account. These are criteria that many new investors might not have. They are getting into real estate investing because they need to make money.
Summary
There is almost endless capital out there for real estate investors today. The best profits will be found by honing in on the right mortgage lenders for your needs and location. The big new lenders can be great, but they are not always the most profitable option for all investors.
