Private Lender Update, November 15, 2022: DSCR Loans, Fix & Flip Loans

In this video, OfferMarket co-founder and CEO, Daniel Sperling-Horowitz, provides an update on how things are going in the private lending industry.

Video Transcript:

Private Lender Update

Hey there, Daniel Sperling-Horowitz here with OfferMarket and it's been a little while since our last update so I wanted to take a few minutes to bring you up to speed if you aren't familiar with some of the developments in the private lending space. Now, I want you as a borrower, as a real estate investor who uses private lending or private funding for your fix and flip projects and for your rental portfolio, I want you to be aware of the thought process from an underwriting perspective because it's extremely important as you're looking to refi out of your short term fix & flip bridge loans or as you're looking to purchase your next rental property. The core situation that is very much still developing and surely will continue to change is that capital providers, these are institutional capital providers, insurance companies, pension funds, credit funds on Wall Street, they are much more concerned about borrower strength.

Credit Score, Liquidity, Experience

So you, as a real estate investor, you need to pay attention to these very important underlying metrics that determine your strength. Your credit score, your liquidity, and your experience. You know, what kind of experience do you have?

Risk Off Private Lending Environment

So overall it's a very risk-off environment. We're seeing capital providers almost across the board issuing 5% reduction in maximum leverage (LTV, LTARV). So if you thought you were going to be able to do a cash out refinance with a DSCR loan at 75% LTV, there's a really good chance you're only going to be able to do 70%. If you thought you were going to be able to do it with limited liquidity to show, pre-cash out even, you might be left waiting to replenish your liquidity in order to close the loan. We're seeing interest rate increases in the DSCR space, even though as of this week we're seeing the 30 year fixed rate conventional mortgage come down to 6.65% as of today. So that spread is widening between the 30 year conventional fixed rate mortgage and the DSCR loan.

Fix and Flip Loans

And then on the fix and flip loan side, we're seeing overall less leverage. If you used to be able to get 85% of the purchase price, you should right now expect 80% of the purchase price. Obviously there are exceptions, and you know it really helps to have a higher credit score, it really helps to be able to show liquidity, it really helps to have a good profitable deal and experience. It's a very risk-off environment right now.

How Important Is Credit Score?

I think a lot of borrowers are not paying attention to their credit score and how important that is. Being at 700 is really not enough right now, you need to be at 720 -- I know how harder to get to those numbers as inflation is making everything more expensive and you know you have to spend more money on your credit cards. So there are things that really need to be top of mind for real estate investors that use leverage.

Appraisals: Comps

Appraisals, and I know we're shooting from the hip here, this is unscripted, but appraisals... comps that are greater than 6 months old are no-nos right now. We're looking for comps that are from the last 1 to 2 months and in many markets that means that we're seeing comps that may not support the ARV or the As Is Value (AIV) that you were expecting, right.

Pay Attention: Credit Score, Liquidity, Experience

So be really aware of these important things that we've outlined: credit score, liquidity, making sure that you're underwriting really you know conservatively as you look for your next deal. What is the profitability going to be if my comps are 5% lower than I think is an appropriate comp? So there's a lot of things that we should talk about, please drop a comment, subscribe to our channel, happy to flesh this out in more detail, we're always happy to hop on a phone call.

Get DSCR and Fix & Flip Quotes

Click the link above to get loan quotes from our lending platform.

How Does OfferMarket Work?

A lot of people wonder 'what is OfferMarket?'. We're a private lending platform. So we originate loans, some people call us Kayak for private lending. And what does that mean? It means you can come to one spot and you can access the strongest capital providers across the country and in many cases OfferMarket Capital LLC is the lender on the loan docs. In some cases we're more like, some people would say a 'Super Broker', we're essentially the correspondent lender for the origination. But you get better deals when you come to OfferMarket than you would if you tried to go to some of the other players in the space that just have one program. With us, we match you with the most competitive program. So for DSCR, it's really hard to beat us right now. For fix and flip, it's really hard to beat us right now.

Make sure for your next project, if it's a cash out refi, a DSCR purchase, if it's a fix and flip loan, get a quote from OfferMarket, let us prove to you that we're the best option for you. And I confidently tell you that we will be. So anyway, thank s very much for tuning in, make sure you like it, subscribe, drop a comment, reach out to us. We're here to help you navigate this very challenging environment. Thanks so much and have a great day!