In a Nutshell: The continued housing market boom presents an opportunity for new investors to fix and flip homes as a source of income. Rehab Financial Group helps investors enter the market by offering up to 100% financing in a fraction of the time conventional lenders typically take to make their offers. The group also considers an applicant’s comprehensive financial picture when evaluating risk, making funding much more accessible to a broader range of borrowers. That approach benefits both investors and the real estate industry, as Rehab Financial Group loans can help put quality inventory back on the property-starved market.
The real estate market in America saw a massive boom in 2020 that has extended well into 2021. According to Zillow, the average value of a home in the U.S. is now more than $300,000. That represents a 17.7% year-over-year increase.
The demand for housing during this period of low inventory has created plenty of opportunities for investors to purchase, renovate, and sell homes.
But conventional lending may put that opportunity out of reach for many investors, as they lack the credit scores to qualify for complete funding.
Rehab Financial Group aims to ease the burden on investors by offering loan products that are friendly to both new and experienced borrowers. Its 100% financing is available to investors in 25 states, making it a strong partner for anyone interested in fixing and flipping homes for profit.
“The reason is that we look at very responsible underwriting and very common-sense underwriting,” said John Santilli, Chief Revenue Officer at Rehab Financial Group.
Many lenders in this space only consider cash and credit when making lending decisions. But Rehab Financial Group takes a deeper dive into the investor’s financial profile. It makes decisions based on the borrower’s holistic economic picture rather than on just a few factors.
That also means Rehab Financial Group can deliver funds in a fraction of the time that it takes conventional lenders, helping investors capitalize on a highly competitive market.
“All of our loans are short-term loans,” Santilli said. “As long as we can see the cash flow, that they’re going to be able to pay us off during that short period, we go ahead and make the loan.”
Lending Focused on Speed and Liquidity
One of Rehab Financial Group’s most significant advantages is that it makes loans available to those who can’t qualify for a conventional property rehabilitation loan.
“We’re not in competition with traditional lenders because we just don’t do the same product,” Santilli said. “We are an alternative solution to a lot of the conventional loans that are out there.”
Rehab Financial Group also caters to unproven investors. While the company is happy to lend to seasoned investors, its website is designed to help newcomers understand the process. It provides tips on what to look for in an investment property and tools to help borrowers make informed decisions.
Another advantage is Rehab Financial Group’s decision-making and dispersal speed. Rehab Financial Group can close a loan in fewer than 15 business days depending on how quickly title and appraisal companies move through their workflows.
Conventional loans, on the other hand, can take anywhere from one to three months to close.
Rehab Financial Group’s loans are 100% products, which is relatively rare in its market. That means investors aren’t required to provide the down payment, which can significantly reduce costs at closing. That makes the process easy for newcomers, especially those with poor credit or without ready funds, and it is also attractive to experienced investors.
“Most of my competition is going to require a down payment on the purchase,” Santilli said. “And the fact is, you’re only required to come to the table with closing costs — nothing else. Our product keeps investors, in general, more liquid by coming through us, and that’s why a lot of those people come to us. We’re set up for speed, and we use the common-sense practices that we’ve built from the very beginning to help investors bulk invest.”
Borrower Credit is Evaluated by More Than Just a Score
Rehab Financial Group is also well-suited to investors who may not have the best credit scores. While someone with a low score or a recent bankruptcy isn’t a good candidate for lending, Rehab Financial Group’s method of evaluating borrowers makes it more friendly to those with credit issues.
When evaluating credit, Rehab Financial Group considers the borrower’s whole financial picture, not just their score. Many lenders will use automated decision-making processes, but Rehab Financial Group holistically scrutinizes reports to understand the borrower’s situation.
For example, Rehab Financial Group may compare current savings to debt, and if it’s disproportional, investigate why that’s the case instead of dismissing the borrower. Perhaps they’re concluding another project, and that home’s sale will allow them to pay off the preexisting debt in short order.
“A lot of real estate investors are high-volume credit users because they invest in many properties. Sometimes they’re using their credit cards to float construction expenses,” Santilli said. “That’s the way that we look at the credit. Not just the score but what goes on behind the scenes.”
When lending to co-borrowers, Rehab Financial Group put more weight on the stronger credit profile. Conventional lenders, on the other hand, will focus mainly on the weaker of the two. That allows for more equitable access to lending, enabling more people to enter the home renovation market.
Home Renovation Expands Markets Amid Scarcity
The more people who can buy, renovate, and sell homes, the better it is for the housing market.
“The market is tough everywhere,” Santilli said. “The inventory is tight across the board. There’s no doubt about that.”
In the wake of the COVID-19 pandemic, housing prices have skyrocketed. Remote work has freed people from being bound to a single location. Many workers have moved out of high-priced cities into suburbs or to more desirable climates.
That dynamic alone would be enough to drive up prices, but labor and material shortages have also contributed to rising home costs. Amid work shutdowns and furloughs, many workers began moving into industries that offered more stable income during the pandemic. Shutdowns also made certain building materials, including lumber, scarce.
Homes that may have been hard to sell two years ago — “the haunted house on the corner” types as Santilli described them — are now hot commodities in a property-hungry market. Investors add valuable inventory into the market by purchasing homes, renovating them, and then selling them.
“We feel like we’re creating housing inventory,” Santilli said. “We’re helping the process, whereas, when builders are a little bit shy on throwing too much inventory out there. We are leaning in to help investors create inventory.”
Rehab Financial Group’s Tip: Start Small in Local Markets
Investors need three things to invest in property right now, Santilli said. The first is a good finance partner. The second is a good construction partner, and the third is the right property to fix and flip.
The first two are contingent on the third because, without a viable property, there’s no need for finance or construction.
“There are so many different angles of trying to find the right property with the best margin,” Santilli said. “I know it sounds a little cliché, but the best advice that I can give investors is to stick to your local markets people that you know because you’re going to find more opportunities from them than from just combing the web.”
Those looking at properties online can rest assured they’re not the first investors who have looked at them. The digital market expands access to investment properties and increases competition to acquire those properties.
Instead, it’s better to network within a local area. Investors should start with people they know, put out the word that they are interested in investment properties, and leverage personal connections.
Santilli cited the example of the aging population of baby boomers who own homes but may be forced to vacate them soon as their ability to live independently wanes. These homes are prime targets for investors, especially if they can get their foot in the door before the house goes on the market.
“That’s kind of like the No. 1 property, right,” Santilli said. “Those are the opportunities that can turn to gold. To network around your area is the best advice.”
New investors should also avoid the temptation to go big right away. Instead, they should start small and gain experience before tackling larger, high-value properties.
“The problems and the challenges of learning this business are all the same,” Santilli said. “The only big difference here is that, if you start with a $500,000 property versus a $100,000 property, it’s just five times the issue.”