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Tuesday, Sep 26, 2023

House-Flip Lender

If you’re eyeing that rundown but charming bungalow down the street as a possible fixer-upper and rental property, then hard money lender Anchor Loans has a new program just for you. The Calabasas nonbank lender recently widened its singular business model of selling short-term loans to “house flippers” to include customers who want to buy, fix and hold onto the residences as income-generating properties. Stephen Pollack, Anchor’s co-founder and chief executive, says the company launched the new product – only its second one in a 19-year history – last month because existing and new customers have been asking for it for almost three years. That’s significant, as repeat customers make up 85 percent of the company’s business. “It was the demand coupled with the fact that other lenders are already in the market doing this – and we felt we could do this better,” Pollack said. “We believe it was a natural adjunct because it’s with the same type of clients we had been dealing with for 20 years.” The new loan program also enables the company to enter the single-family home and condominium rental market, one which continues to be dominated by investors rather than owner-occupiers, and at a time when large, national investors that had been buying up homes for rent in recent years are starting to back off, most likely because of the rise in housing prices. Fix-up and rent The fix-and-flip industry gained traction and even glamor through television shows after the Great Recession and the real estate industry crisis left countless owners of homes and condominiums across the nation in financial distress and their properties in need of major overhauls. But Anchor was ahead of the game. Pollack and two partners started the company in the late 1990s to serve what was then called the rehab industry by “selling money” from investors rather than through a bank. “We felt it was a good opportunity to not just be the investors, but to be more in control of notes and borrowers, and underwrite the borrows,” Pollack explained. They grew their $8 million of initial capital into three investor funds now totaling nearly $1 billion from which the company has loaned $4.5 billion in 15,000 loans over its 19-year history. That makes Anchor the largest lender of its kind targeting the fix-and-flip market, Pollack said. Money is lent to borrowers to buy homes or condominiums they will renovate and then sell. Anchor’s average loan in California is $400,000, while in other states – Georgia, Florida, Arizona, Nevada and New Jersey – it’s $150,000. The average borrower is someone with one home or investors with small portfolios. The target home is the main, and in most cases, sole piece of collateral backing the loan, although borrower cash can help. Anchor also delivers the money quickly – within seven days once the loan is approved, or sooner in rush situations. In turn, borrowers pay a 9 to 13 percent interest rate, depending on how much of a loan they take out compared to the value of the acquisition property. That compares to mid-August rates of 2.97 percent for the average 15-year fixed mortgage, and 3.77 percent for a 30-year fixed mortgage, according to Bankrate. Anchor’s borrowers must also be experienced flippers doing more than five successful turnarounds in the prior year, not live in the structures and pay the loan back in six to 12 months. Home flipping is still growing. In 2016, more than 193,000 homes and condominiums were flipped nationwide, up 3 percent from the prior year, to account for almost 6 percent of all homes sales, according to Irvine real estate tracker Attom Data Solutions. Anchor, like numerous other companies, hit a snag during the Great Recession. Growth slowed and double-digit returns evaporated. But since 2014, loan dollar value has grown between 42 and 60 percent a year, according to Pollack. In the same time frame, Anchor has expanded geographically into lending money to properties in 42 states plus the District of Columbia from its core California markets. The media spotlight on home-flipping has helped legitimize it, Pollack added, and also increased investors’ awareness. “We’ve seen a tremendous amount of capital, especially as interest rates are so low,” he said. “That has driven more and more capital into our space, allowing us to do more loans.” Home rentals Requests from Anchor’s existing customers for loans they could use toward eventually renting out their properties started around 2014. Two years prior, the current upcycle and residential real estate housing boom started, with small investors disproportionally driving that boom, said Daren Blomquist, senior vice president at Attom, the real estate data tracker. “When we break down the national data in 2016 – 33 percent of all single-family homes and condos went to non-owner occupiers – and that’s the highest amount since 2000,” Blomquist said. Jobs in the gig and share economies are more transitory and less stable, he explained, contributing to renting’s growth and denting homeownership despite low unemployment figures and job and wage growth. Also, as home prices rise, having an adequate down payment has deterred purchasers. Large investors have moved into the single-family home rental market. The success of publicly traded American Homes 4 Rent in Agoura Hills, which has become the nation’s largest single-family home landlord, has increased competition for investing in rental properties. At Anchor, although loan volumes for its traditional home flipping product are up this year from last year, they may not deliver the same huge, 40-percent increases seen in recent years, Pollack said. While that situation was not a factor in the company’s decision to begin offering a new type of loan, he did say “there was a consideration made for the rental product (in) that it would be good to offer in case there was a decrease in demand for fix and flip.” To fund the new loan program, Anchor had to shop for new investors and credit facilities that would fund longer-term loans, such as five years versus the current seven months for fix-and-flip borrowers. Plus, the new loans have interest rates of 6 percent compared to at least 8 percent for the flipping-only loans. The cost of the capital had to be cheap enough for the loans to make financial sense for Anchor, Pollack said, and the underwriting needed to account for the longer loan terms. New details also had to be added into loan agreements. The new loan program launched in July, and Pollack sees customers are taking advantage of it. “The demand is just there, and our pipeline keeps growing with these types of loans,” he said. Attom’s data shows small home flippers taking back market share. The percent of home ownership by those who own 10 or more properties was at 2 percent in the second quarter compared to the 8 or so percent it was in 2012 and 2013, Blomquist said. “Smaller investors buying just one or two are continuing to be very active, enabled in part by the increased availability of financing,” he said. But Anchor’s loan program seems to make more financial sense for homes in states other than California because of the high property prices here. “We never want to make a loan to an owner of a rental in which their payment to us is more than the rent that they are getting,” Pollack said.

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