Home-Flipping Trend Stalls As Hard Money Lenders Jump 40%

The American Association of Private Lenders says the number of hard money lenders is approximately 8,300, up 40% since 2016, reported Bloomberg

A hard money loan is an asset-based loan financing through which a borrower receives capital secured by the property. The volume of these loans to house flippers last year rose to $20 billion. That's up 37% from 2016 and about double the figure from 2014. ATTOM Data Solutions believes hard money is a significant source of lending for house flippers.

"There's a lot of activity. Every time I turn around there's new entrants," said Glen Weinberg of Fairview Commercial Lending in Evergreen, Colorado.

While Weinberg usually loans up to 60% of a property's value, some newer lenders will go up to 90%, he said.

Blackstone Group LP and Goldman Sachs Group Inc. recently dove into the hard money lending space, drawn by interest rates of 8% to 12%.

About ten years from the real estate trough in 2009, the outlook is starting to seem worrisome for flippers and their hard money financiers.

ATTOM Data Solutions published a new report earlier this month called Q1 2019 US Home Flipping Report, which shows house-flipping volume rebounded across the country earlier this year as gross profits and return on investment fell.

In Atlanta, house flippers want to put up smaller down payments than ever before, said Michael Braswell, a broker who works with hard money lenders.

"I would say, probably more than half the deals that come across my desk are not viable deals," Braswell said.

Nationwide, 49,000 homes flipped in 1Q19, represented 7.2% of all home sales last quarter, up from 5.9% MoM and up 6.7% YoY, the highest home flipping rate since 1Q10. While this could be interpreted as a sign of continued progress, it also may suggest that investors are unloading their homes while they still can, Attom's Todd Teta told Bloomberg this month.

The West Coast has seen some of the most significant house flipping declines in the country.

Bloomberg said hard money lenders aren't forecasting a downturn in the real estate market just yet, but as we have mentioned before, many have overlooked the economy cycling down into 2H19.

As Zerohedge readers would know, any disruption in hard money lending and or a downturn in the house flipping market would be a 'canary in the coal mine' that could suggest the overall housing market will continue to deteriorate into 2020.