After the last financial crisis, there were a lot of homes available – and a lot of investor demand for them. Velocity Mortgage Capital, specializing in residential investment lending, got the hint. One of their investor mortgage products, Investor 1-4, for single family rental properties, grew increasingly popular across the country. As the years went on, however, their customers were asking for some type of program that would allow them to acquire the property and then get some financing to do the improvements so they can either leverage their capital or enable them to do multiple projects at once, which led to the recent launch of their short-term interest-only ARV Pro Loan.
It didn’t happen overnight. Despite the “fix and flip” craze on HGTV, DIY Network, and other networks over the past decade, it took years for executives to determine whether it was a short-term blip or whether it was going to turn into an industry worth developing a program around. That, coupled with an increasingly dwindling housing supply that led many investors to purchase properties that needed more work than they may have initially anticipated.
“Over the last few years, we started to realize that there really is a consistent demand and need for this type of financing,” said Chris Farrar, CEO of Velocity Commercial Capital. “We’re seeing that most of these folks would prefer to deal with a private lender or finance company like ourselves as opposed to a bank or a credit union just because of the bureaucracy and the red tape; so when we’ve looked at the data and the market performance and what’s going on in the real estate market, the lack of supply of new homes, and that type of market dynamic, we just feel like this is going to be an enduring and lasting niche that we should help our customers serve.”
For brokers, these kinds of programs serve as being just another arrow in the quiver. For many originators, trying a new niche and learning about a new type of product can be a hassle, or even somewhat intimidating. But it’s one of those things, Farrar said, that you can’t learn by reading a book or going to a class.
“I think you just need to jump in the pool and start swimming. Time and time again I hear from brokers that say, ‘Gee, I wish I’d have known about this a couple of years ago, this is a great little program you guys have here, and it’s an interesting way for me to continue to serve my clients.’”
Velocity has had to do a lot of education of their clients, making them feel more at home with these types of products. Because many originators know residential lending like the back of their hand, Velocity has tried to make the process as much like a residential process as possible.
“Their main hesitation was that they think it’s more complicated, they think it takes a lot more time, and the number one reason is, they don’t want to give bad advice to their clients because it’s all about satisfying your customer and repeat business,” said Michael Oddi, chief marketing officer at Velocity.
Once originators discover more about commercial lending, however, many realize that there are more similarities than they’d initially expected: you’re looking at the same kind of variables that you’re using in making a residential loan. The names of the forms are different, and the process is a little different, but basically, it’s the same thing. There’s a learning curve, but ultimately, it’s a loan, and it might make sense to have it in your arsenal if you truly want to meet all of your client needs.