Paul Smoot is director of wholesale originations with Lending One, a private real estate lender
that offers fix-and-flip and rental loans for investors. Smoot is responsible for LendingOne’s
dedicated wholesale channel, where he develops and oversees referral relationships with
residential and commercial brokers. He has a 30-year background in residential and private
money lending, predominately in management of wholesale lending channels. To learn more,
visit lendingone.com. Reach Smoot at firstname.lastname@example.org.
82 Scotsman Guide Residential Edition | ScotsmanGuide.com | January 2017
<< Refuge continued from Page 81
Conventional residential lending, of course, will continue as interest rates rise, but this will likely be at a slower pace. Refinancing production will get hit harder and may fade
drastically as rates rise. And yet, homebuyers will still be
out there, albeit in potentially fewer numbers. Higher
interest rates have historically meant less conventional
lending opportunity and lower loan volume.
As in the past, higher rates will cause some homebuyers to sit on the sidelines if they don’t like the
monthly payment for the price range they want.
Many of these potential first-time buyers may decide to
just keep renting. Originators prepared for an influx of
renters seeking refuge from higher interest rates can
find an already thriving alternative market segment
if they understand the various types of loans and
know some of the lenders who are already flourishing
in this vibrant lending space.
Many mortgage originators and commercial brokers already know about the one- to four-unit family
rental space. Single-family rentals alone account for
15.1 million residences in the U.S., or 13 percent of all
occupied housing stock, according to a 2016 report
from RCLCO, a company that provides property-investment advice.
Originators and lenders successfully providing fund-
ing in this space have seenincreasing pipelines and
compensation in recent years. For the last several years,
the real estate investor market has provided great
opportunity through fix-and-flip and fix-and-hold loan
volume. Month after month, tremendous revenue
is being created by originators and private money
lenders who provide leverage for investors to purchase
distressed homes and rehabilitate, or rehab, them with
the goal of making nice profits from the resale.
There will always be a market for the fix-and-flip
side of real estate investing. The demand for this loan
product continues to be strong, and commercial
brokers and residential originators have been capitalizing on this investment area for some time. Because
of the complexity of the product and process, fix-and-flip investing has generally been a specialty of private
The investor market has been evolving, however,
with the fix-and-hold rental market seeing a significant increase in popularity and profitability in the last
two years. It is predicted to rise even more in 2017.
This has further encouraged real estate investors to
expand their portfolios to capitalize on this growing
opportunity, causing many to buy and rehab homes
to hold for rentals instead of selling them.
Other investors are purchasing turnkey rentals that
have already been rehabbed and are currently rented.
In both cases, the objective is to provide rental housing for those who are veering away from buying and
would rather rent instead, and to make a profit, of
This market has been great for landlords as well.
According to a recent report from a webinar featuring
Dennis Cisterna, chief revenue officer at Investability,
rents have appreciated 15 percent and the demand
for single-family rentals is steadily rising as well. The
national vacancy rate is only 7 percent, meaning that
93 percent of single-family rentals are occupied.
If interest rates do rise in the coming year and keep
first-time buyers out of the market, they will likely stay
or become renters. The full circle of how this market
holds opportunity when rates are high makes it a
solid option to offset conventional pipeline reduction.
Instead of lending to the renter who wants to become
a homeowner, originators can lend to investors and
landlords who will provide rental options to the
increasing numbers of young families looking for
Investment funding sources
Fannie Mae and Freddie Mac both allow investment-property loans with adjusted terms. These loans
require full documentation and follow standard conforming guidelines. This is usually the best direction
for the lowest rates and payments; however, they both
have limits on the number of properties that can be
owned and financed. Fannie and Freddie also require
the borrower’s income to be verified and qualified.
Community banks are an option where the bank has
an appetite for real estate-investor business. Portfolio
lending allows some flexibility to work with investors,
generally offering good rates and terms and often having more generous limits on the number of properties
owned. Because community banks usually lend the
bank’s assets, they also can establish their own guidelines and requirements based on their appetite for this
type of business and their risk tolerance. There are
some community banks that will work with originators.
The trick is to find one and establish a good business
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