Over the last two decades, fix and flip investing has become one of the most widely recognized and profitable real estate investing strategies. For astute investors utilizing adequate fix and flip financing, renovation projects create avenues to quick turnaround, massive profits, and scalability.
Private lenders wanting to enter the fix and flip arena will find the same benefits are available through innovative business-purpose loan options.
The Problem with Traditional Consumer Loans for Investors
For real estate investors, conventional methods of attaining a loan through traditional lenders–like banks and credit unions–are often cumbersome. Consumer mortgages, designed for borrowers who intend to occupy the property they purchase, come with strict guidelines, numerous requirements, and laggard processes.
Not to mention, even more hurdles emerged for consumer loans shortly after the 2008 housing market crisis. Congress introduced the Consumer Financial Protection Bureau (CFPB) and multiple laws, like the TILA-RESPA Integrated Disclosure (TRID), to consumer mortgages.
TRID is a combination of two separate laws:
- The Truth in Lending Act, or Reg Z, monitors the fees and expenses involved in mortgage loans.
- Real Estate Settlement Procedure Act, or RESPA, relates to the time, fees, and expenses involved in the purchase of real estate.
While the CFPB and TRID protect the market and homebuyers, they further hamper loan processes, put more burdens on lenders, and, in turn, make it more difficult to approve loans. These obstacles make traditional avenues for fix and flip loans impracticable for investors reliant on acquiring financing with speed and flexibility.
Although the private lender sector is less regulated, mortgage brokers are still required to adhere to rules set in place by the Home Mortgage Disclosure Act (HMDA). HMDA’s purpose is to ensure banks and lending institutions follow fair lending practices. Without adequate checks and balances, many lenders fell victim to HMDA violations and fines.
The Power of Business-Purpose Loans
Unlike consumer mortgages, business-purpose loans–or commercial loans–are specifically designed for real estate investment properties. These business loans, like stabilized bridge financing and fix and flip loans, fund the purchase and rehabilitation of a property by a non-owner. More importantly, these loans provide the flexibility and speed necessary for investors to scale and outpace the competition.
Does TRID apply to commercial loans? The answer is no. With business purpose loans, lenders avoid the restrictive oversight and red tape of consumer mortgages. In fact, most states do not require a mortgage license to lend to real estate investors.
Business-Purpose Loans Through Private Lenders: Flexibility without the Bureaucracy
While traditional lenders offer fix and flip financing and other business loan options, institutional oversight and strict rules are still present. Even if you have the stellar credit score and hefty downpayment necessary for approval, banks and credit unions have stringent property condition requirements. Thanks to the CFPB and acts like TRID, many traditional lenders are inclined to say “no,” even to the most qualified investors.
Fewer regulations, significantly less oversight, and flexibility make procuring business loans from private lenders–private mortgage brokers–a more seamless and advantageous endeavor.
Let’s look at some of the key benefits of acquiring business purpose loans through private mortgage brokers:
Multiple Options to Fit Your Needs
Business loans don’t begin and end with fix and flip financing. Private lenders can offer a variety of business purpose loans to fit the unique needs of their clients, including:
- Fix and Flip Loans
- 1 – 4 Unit Bridge Loans
- Rental & Rental Portfolio Loans
- Ground-up Privately Funded Construction Loans
Flexible Terms
Mortgage brokers have the flexibility and freedom to tailor loans to:
- Meet the specific requirements of a project.
OR
- Work with clients who lack the credit or downpayment required by traditional lenders.
Fast Approval
Quick loan approval processes allow investors to close and capitalize on properties quickly.
Control Over Sale Price
Low-interest business loans cover the construction, repair, and purchase of a property, enabling investors to sell homes at lower prices while still turning a substantial profit.
Types of Properties
While traditional mortgages are for the purchase of occupied single-family homes, several types of properties qualify for different business-purpose loans, including:
- Non-owner occupied
- Attached or detached Short Family Rentals (SFR)
- 2 – 4 unit properties
- Townhomes
- Warrantable condos
- PUD
No Prepayment Penalties
While traditional lenders often penalize borrowers for early repayment, private lenders encourage quick repayment by waiving prepayment penalties on some loan types.
Eligibility for Bad Credit Borrowers
Rather than obsessing over credit scores and down payments, private lenders take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining business loan eligibility.
LTV, LTC, and ARV considerations, less bureaucracy, and more freedom empower private lenders to approve more loans, facilitate client relationships, and grow their business at scale with business-purpose loans.
Table Funding
While business-purpose loans are the golden egg to elevate your mortgage brokerage business, funding real estate projects for investors can be an expensive and risky venture. Many private mortgage brokers rely on table funding programs to provide procedural structure and reliable funding while mitigating risks.
The private lending market was once a Wild West of sorts, filled with gung-ho entrepreneurs. Capital was raised in informal, non-institutional ways or acquired through suspect hard equity lenders–who used unstructured, risky loan approval processes.
Established capital providers like Roc Capital helped introduce the structure, discipline, and benefits of institutional capital to the private lender sector through table funding programs.
Roc Capital’s White Label Table Funding program is designed to enable private lenders to simply focus on lending. Roc Capital’s team works entirely behind the scenes, allowing you to maintain a professional level of authority with your clients, handling the loan underwriting and funding processes.
How Roc Capital’s White Label Table Funding Works
- The private lender identifies the investment property and the borrower–representing themselves as the lender to the borrower–and “brings the loan” to Roc Capital.
- Roc Capital works behind the scenes, performing loan underwriting and overseeing the drafting of white label loan documents.
- If the loan is approved, Roc Capital provides the capital and wires money at the “closing table” on your behalf. The private lender doesn’t need to contribute any money toward the closing.
With table funding programs like Roc Capital’s White Label Table Funding, mortgage brokers have the liquidity to explore more ventures, the freedom to better serve their clients, and peace of mind, knowing they have a reliable and trusted capital partner.
