Investing Tips from John, Paul, George, and RingoNov 08, 2023 11:35AM ● By Robert Neely
Real estate investors have endured dramatic shifts in the housing market over the past few years, from Covid shutdowns grinding projects to a halt in 2020 to a significant housing price spike between 2020-and ‘22 to rapidly rising interest rates over the past 18 months.
With massive changes happening here, there, and everywhere, many investors are wondering where to look for help.
The good news is that you’ll find the answer in an unlikely place — with The Beatles.
If you’re an investor who needs somebody, and not just anybody, let The Beatles remind you that you can get by with a little help from your friends. The market may not get back to where it once belonged in the minds of many investors, but profit is still out there for investors who come together with the right partners to succeed.
That’s especially true for investors looking for funding for their fix and flip projects, rental portfolios, or new builds.
Do you remember when investors thought “I feel fine” about favorable market tailwinds just a few years ago?
In 2021, it made a ton of sense for investors who completed fix-and-flip projects to refinance and hold the properties as rentals, because interest rates were at all-time lows. Now, with rates at generational highs, that strategy doesn’t pencil out nearly as often.
But that change doesn’t mean investors are out of luck. They can still profit by selling flips at prices bolstered by record home price appreciation in 2020-’22. And because few homes are hitting the market, investors can generally sell quickly to homebuyers who are finding it difficult to find quality places to live.
This example demonstrates how real estate investors don’t need one specific set of market conditions to succeed. Investors don’t need to long for yesterday, because they can take a sad song and make it better. Life goes on, and they need a strategic investment plan that will work in today’s market.
To create such a plan, investors need a full view of the market and a good sense of what might happen next. And no matter how good one investor’s intuition is, the truth is that working with funding experts across the alternative lending spectrum can help investors make better decisions and close deals faster.
So, who are these experts? They run the gamut.
Bankers: For many investors, the bank is the first stop for funding solutions and market intel. Banks have largely gotten more conservative in the 2023 economic environment, but community banks can still be a good source of loans and solutions for investors committed to a certain area.
Private Lenders: As banks get more conservative, both in terms of lending criteria and documentation required, many investors pivot toward private lenders who specialize in business-purpose loans. These lenders (such as Lima One Capital) offer solutions designed for investors, such as Debt-Service Coverage Ratio (DCSR) loans.
Pro tip: As you work with private lenders, make sure they have the liquidity to get to the closing table. The economic environment of 2023 stretched many lenders who did not have a secure source of capital.
Brokers: Mortgage brokers are a great help to investors because they have relationships with multiple funding companies and know what types of loans are available. More importantly, good brokers guide investors toward solutions designed to help each project succeed. Brokers may work regularly with real estate investors, or they may be traditional mortgage brokers who often work with the forward-facing mortgage market.
Fellow Investors: Other investors can be a key source of knowledge. They can refer you to lenders, real estate agents, or title companies, and they have a wealth of knowledge of the neighborhoods where they invest. The good news is that many investors are happy to share their expertise about a day in the life of an investor, whether at local real estate investors group and homebuilder events or in investor-centric online networks.
As you can see, plenty of helpers are available to real estate investors. So, what kind of help should investors expect?
Market Knowledge: Each market is different for real estate investors. In fact, each neighborhood is different in terms of consumer demand and quality inventory. Talking to local experts can serve as a crash course in local knowledge that benefits investors greatly and can help you learn the difference between Penny Lane and Strawberry Fields.
Faster Process: Having the right contacts can help an investor cut the line and speed up the long and winding road to the closing table. For example, the right broker has the resources to get multiple financing quotes in hours, when an investor might have to spend eight days a week contacting several lenders to run the numbers.
More Flexibility: Investors can deploy a wider array of strategies and exit scenarios when they have a broader network. For example, working with the right lender allows investors to finance a rental property with a DSCR loan that is fixed-rate for 30 years, or on an ARM, or on an interest-only period with 25-year amortization, or even on a short-term interest-only bridge loan. With this kind of flexibility, an investor has more options to gain cash flow on a deal.
More Closed Deals: With more knowledge, more financing options, and increased flexibility, an investor has the option to close more deals and make more money. That’s the gold standard of results that will make investors who are willing to shake it up twist and shout with joy.
You’ll find a lot of options when it comes to financing real estate investments — bank financing, non-QM financing, and business-purpose lending, to name a few. All of them have their place, and most investors will end up using both conventional financing and alternative financing solutions at some point as they scale their real estate portfolios.
The key to finding the sunny side is not choosing one lane for financing, but instead in building a network that lets you deploy multiple financing options at the right time on the right projects to maximize profit. These are the investors who find the smile returning to their faces as the sun rises on a new and profitable day.
Robert Neely is the director of marketing at Lima One Capital. For more information, visit limaone.com.