<< Bridge continued from Page 36
“Bridge loans take a
considerably shorter
amount of time to
close compared
to traditional
financing.”
Scotsman Guide Residential Edition | ScotsmanGuide.com | December 2017 38
Individual investors will usually be the personal
guarantors for the loan, but the borrower of
record is their entity, such as an LLC or corporation. This shouldn’t be a hurdle because serious
investors have an established entity or entities
for a few strategic reasons anyway. Non-recourse
loans, where there is no personal liability, are
limited in availability because of the extended
risk with these loans.
To ensure completion of the project, the
lender will usually set up a “repair escrow” at
closing. The investor will request draws as they
reach milestones. At these points, the lender
will usually have inspections performed, and
then they will release the funds based on the
inspection. This should be a quick and efficient
process so that cash flow into the project stays
on track.
Originators will want to make sure their investor clients understand this process and/or have
the experience necessary to bring the project to
completion. They also will want to vet the lenders to make sure the draws will go smoothly. One
bad project can sour the originator’s relationship
with the client or the lender, or both.
Opportunities abound
For residential mortgage brokers or independent originators, bridge loans can be a lucrative
product. According to Attom Data Solutions,
in this past second quarter, investors financed
an estimated $4.4 billion in flipped homes, a
29 percent increase from the $3.4 billion financed
during the second quarter of 2016 and an almost
10-year high.
Serious investors are constantly active in the
fix-and-flip or fix-and-hold market. Some may
do one deal at a time, while others complete
multiple deals at once. Building a relationship
with an investor provides an originator with an
ongoing opportunity for consistent and reliable business, which is usually not the case with
residential lending.
Additionally, originators can have greater confidence in fast and successful closings because
experienced investors are familiar with bridge
loan financing, and bridge loans take a considerably shorter amount of time to close compared
to traditional financing. The end result is more
deals and faster closings, which translates into
quicker and more frequent commissions.
Beyond the direct benefits originators get
from offering this product, just having it in
their arsenal can be a real conversation starter
with Realtors and other groups of trusted advis-
ers. Some Realtors specialize in the real estate
owned, or REO, market, and bridge loans are a
great way to open doors to this segment.
Investor-borrowers also can make introductions to their Realtors. Most have “go-to” agents
they use in different markets, which originators
can potentially add to their own network. This
also can work the other way. If an investor decides to sell a property instead of holding it as
a rental and needs a Realtor, this can be a potential lead for one of the originator’s Realtor
partners. Once this network is created, it can
provide more and better opportunities for presenting bridge loan products as well as loan
programs in the future.
n n n
Thousands of investors have relied on bridge
loan financing to help generate substantial
wealth and cash flow. These loans have an impact beyond just profit or a commission, however. This impact is felt in neighborhoods and
residents that benefited from the work of these
investors, which turned home values around in
certain areas and contributed to stabilization of
previously blighted communities.
The takeaway seems clear. If you are a residential mortgage broker or independent originator,
and you don’t yet offer this product, you could
be missing opportunities. n
Paul Smoot is director of wholesale originations with LendingOne, 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 psmoot@lendingone.com.
Experienced investors also will have an “
exit-strategy” to pay off the loan, whether by selling
the property or refinancing it as an income-producing rental. A few lenders offer rental
financing as well so that the originator can
efficiently help the investor refinance the bridge
loan into a 30-year mortgage when renovations
are completed, often with little effort because
all of the information is already on file.
A growing number of investors are seeing the
upside of holding properties, so this may be an
important consideration for originators looking
for bridge lenders. For those clients who don’t
qualify for conforming refinance, they may need
private-money term loans instead.
