Rise Of Private Money Lending Is Redesigning The Mortgage Market
Aug 22, 2019 15:12
Everything needs to keep up with the changing market scenario and the real estate market is no exception to this universal rule. In fact, real estate is the backbone of the economy of a country because the magnanimous and flourishing mortgage market provides a lot of support to the financial health of the country.
Therefore, when you as an investor want to purchase or even renovate a property, you will need to take a loan from a bank. However, the infrastructure of the banks and their stringent money lending policy may at times make you feel that the financing options are somewhat limited. This is true to some extent as far as the traditional mortgage funders are concerned. As a result a lot of property transaction and other real estate related matters are needed to be put off for the time being.
The strict loaning policy of traditional money lenders and the reluctance has paved the path of the notable rise and a growing national market for the private money lenders. This is a lucrative opportunity for money lenders to earn more income and at the same time have provided the investors with a lot of scope and liberty to go ahead with their real estate plans, whether it is for the need of an extensive remodeling of a exiting property, structural repairs, new purchase or developing business plans that essentially depends on rezoning.
As far as private loan investment funds are concerned, several companies have entered into this private lending business to lend money to others. Investors benefit a lot from this private loan fund whether it is in the commercial or residential real estate sector. In short, private money lending business has enabled to bridge the gap in funding that was left unattended by the traditional money lenders.
The mortgage market scenario
There are a few specific features of the prevailing mortgage market scenario that is experiencing a significant reshaping in its money lending policy and the final outcome as well. This is due to a few specific reasons such as:
•The real estate market is wide and extensive having a lot of potential for the privateloan funding market
•The strict lending policy of the traditional banks and money lenders have made it easier for the private money lenders to capture the market with their liberal lending policy followed
•The big opportunities to these private money lenders are provided specifically by the two specific issues that have helped the private money lenders to learn two particular lessons. These lessons are how many properties are resold or renovated and the proportion in which all homes sold is flips.Flip is something when a house is sold by any willing seller to any unrelated willing buyer twice in a period of 12months.
According to the US Home Flipping report provided by ATTOM, the data and figures reveal the number of fix-and-flips in real estate market that happen each year. The 2016 report of ATTOM showed that in counties where more than 80% of Americans live about 193,009 single family homes and condos were flipped.
As for the remaining 20% of the market that is not covered in the ATTOM data report is compensated by the renovator who nearly flipped 300,000 properties in 2016. The report also showed that the average flip price was about $189,000 which reflects the $56 billion market.
The ATTOM report can be verified when you look at the total housing market of the US that is controlled by the flippers which is priced at $5.4 billion. This is about 5.7%according to the ATTOM report. If you use the same median price of $189,000 as before you will get a total market value of about $58 billion.
That means, no matter which way you run the data one thing is very clear and significant. This is the volume of property flips in America which is substantial.
Role of the private lenders
It is here the role of the private money lenders come into the fore. Probing how much percent of the huge volume of the housing market the private lenders such as Liberty Lending USA and other individuals currently finance, you will notice that there is a significant capacity for these money lenders to lend more money to the consumers. This has created a big enough opportunity for investors to obtain private loan funds.
However, there are a few other things that are noticed which has also resulted in the rise of private money lending in the real estate market such as:.
•Most of the flips that happened in 2016 according to ATTOM estimation were financed either traditionally or by private money lenders. Based on the current proportion of real estate transfers that are listed as all-cash deals in the local land records, this means that the home flippers borrowed money to the range from $17 billion to $18 billion in the year 2016.
•Apart from that, when the volume of money that came from the private money lenders is concerned it is seen that it was especially in those specific markets where the supply of homebuyers has outdoneby the supply of homes for sale.
•It was also seen that in a few specific situations the flippers had to act fast so that they could win better deals even if it is for the purpose of renovating their property. This is due to the fact that traditional mortgage lenders such as banks and other credit unions often take weeks to underwrite a loan and close the deal.
•There are also a few tricky deals seen that often carried the highest payouts and that is the most significant reason that most of the flippers liked them. Apart from the fix and flip operations, privatemoney lending also plays a significant role in helping the borrowers to use these funds to bridge loans, land acquisition, construction, and developmentas well as for shortterm refinances.
Therefore, flow of investment capital in private money lending will rise as long as investors get high returns and benefits.
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