Adding any new product to your product offering can be a big undertaking, especially if your business model is currently humming along. If you’re looking for another way to serve your clients, however, adding a fix and flip product could be a great way to take advantage of the current market situation.
Jason Haye is the National Sales Director at Velocity Mortgage Capital, a direct portfolio lender that provides investment property loans for residential 1-4, multi-family, mixed-use and small balance commercial properties. He said “everybody should have a Velocity Account Executive in their pocket,” because there is a large subset of credit-qualified borrowers who don’t have anywhere to go but places like Velocity, and these borrowers are looking to strike while the iron’s hot in terms of purchasing an investment property.
“We’re in sort of a flux period right now. There’s discussion on legislation, there’s discussion on lending practices, people have loosened up credit guidelines, but the devil is always in the details, and if you’re going to put another tool in your toolbox, make sure you read up on it or call someone who can talk you through it,” Haye said.
Because Velocity talks to realtors, bankers, brokers, and hard money lenders, they have a good handle on the landscape, and even in such a tight housing market, there’s opportunity for investing as well as fixing and flipping. A recent Money Magazine report revealed the top markets for flipping based on ROI: Baltimore was number one with an unbelievable 96.6%; followed by Knoxville, TN at 85%; Oklahoma City at 76.1%; Jacksonville, FL, at 75.8%; and Memphis, TN, at 75.6%. But even if you’re not in any of the markets on the list, there are plenty of others, as long as you have a plan—and have a product that allows you to be flexible.
Haye said that it’s such a seller’s market that you almost can’t lose. The trick now is finding the markets where it’s inexpensive to buy property but hot enough to reap that initial investment quickly. The cities on this list show promise in more ways than one. “They’re decent populations; they’re not cities like New York or Los Angeles or Chicago, but they’re still big centers where there’s going to be people moving in and out of the cities, and in those cities, especially on the east coast, there are a lot of renters. And there’s a housing shortage in general, so even rents are up.”
If you don’t live in one of the up-and-coming cities, how can you know if it will make sense in your market, for your client base?
Part of it is just having a basic understanding of list prices, renovation and construction costs, and sale prices, an area where your realtor partners can be a valuable asset. Even if flipping a house for a profit doesn’t make the most sense, there’s more than one option available to those borrowers who are looking for a place to park their money.
“A lot of guys and gals now are more aggressive because if they can’t just flip it for a profit, they’ll just hold it and rent it out, then sell it to somebody later,” Haye said. “There are plenty of buyers and there are plenty of renters, so it’s a safer investment than it’s been in a while.”
There are more ways than ever to cater to your would-be investor clients. They may have seasonal income, or they’re self-employed, or they have periods of time where their income is inconsistent precisely because of buying and selling properties. Velocity’s bread and butter are these kind of borrowers; those who are credit qualified but not bank qualified, and who can benefit from flexible loan programs.
At Velocity, these options include a 3 or 8 year fixed mortgage that carry the ability to remain in a loan for up to 30 years with no balloon payment. Most lenders have seasoning requirements, but if your client completes the acquisition with Velocity, they’ll use the appraised value after the repairs are done, giving the option of taking a more long-term loan if they’d like to hold the property as opposed to selling it. There’s also a fairly easy six-month extension process so you and your client can figure out the best avenue depending on the property and the market.
There’s plenty of good news in there for your clients who are interested in becoming property investors, but what’s in it for you? The chance to find a gem, for one thing. When a client buys a home, they often just buy one home. With an investor, however, the sky’s the limit. You can find an investor—either a true fix and flip client or a more traditional investor—and they own multiple properties. At any given time, they have to refinance, they want to do portfolio deals, they want to increase their holdings, and that means a constant stream of business for you.
“If you’re a broker and you get one of those clients, it’s like being an insurance agent; you book a hundred insurance policies,” Haye said. “They get comfortable with a process, the trust is built, and here they come, again.”
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