It’s no secret that housing is in short supply. According to Realtor.com, the country is a whopping 5.24 million homes short. And total active listings? Those are down 24% over the year.
To make matters worse, some of that inventory is extremely dated. The typical house is now 39 years old — a far cry from the modern, move-in ready property that most homebuyers are looking for.
For these reasons, the fix-and-flip sector is poised for growth. As investors recognize the potential these older properties hold and the inventory and profits they could open up in such a red-hot housing market, demand for older, more distressed properties should increase.
The only problem? Capitalizing on this trend, at least for brokers and lenders, will be difficult. Traditional lending approaches are time-consuming when it comes to fix-and-flip properties. They come with lots of hassle and overhead costs, and the process just isn’t efficient — for the buyer or for the lender.
Acra Lending is looking to solve these challenges and make fix-and-flip lending simpler and more efficient for borrowers, lenders and brokers. The company has created a new vertical of loans and an entirely new LOS designed just for borrowers looking to purchase a home and renovate it to put back on the market. Through this program, Acra aims to remove many of the financing hurdles typically faced by those in the fix-and-flip sector.
Here are just a few of the challenges Acra’s fix-and-flip program will help overcome:
An expensive and inefficient process
Acra understands the struggles fix-and-flip investors face when seeking financing. In fact, the company even built a team of over two dozen experienced flippers to consult on the matter.
“We have taken the industry knowledge of 25 people who have been doing fix & flips for a long time, and we ripped all the pain points out and discussed them,” said Keith Lind, executive chairman & president at Acra Lending. “We just put our brains together and said, ‘OK, what are the top 20 pain points and how do we eliminate them?’”
The company then built its LOS based on these conversations, removing those hurdles and creating a process that’s easier, more efficient and more affordable on the whole.
“On the lender-broker side, it means cheaper costs to originate, because we’re more efficient,” Lind said. “There are fewer people in operations and less overhead.”
Confusion and a lack of transparency with borrowers
One thing Acra’s team of experienced flippers noted was the lack of transparency in traditional financing — the phone tag and back-and-forth emails that loans typically entailed.
The new fix-and-flip program aims to address this by giving borrowers full visibility into their loan applications, including where their loan is at in the process, what documentation is still outstanding and what’s left on their to-do list.
“They can go on the site, put in their loan number and see exactly where they are in the process,” Lind said. “They’ll see what they need and what has to be done to get the loan processed. It will also show when we’ve sent out communications, just to hold everyone accountable.”
Traditional financing is time-consuming when it comes to fix-and-flip purchases. The biggest problem is that the process focuses on the buyer’s financials — not the property or the investor’s experience.
Acra’s fix-and-flip program puts more emphasis on the business side of things, focusing instead on the property’s value before and after renovation, the number of flips the investor has managed and how long they’ve been in business as a fix-and-flipper.
Because of this, there isn’t endless documentation to analyze — no W2s, bank statements or tax returns. “It makes for a much faster underwrite,” Lind said.
Waning agency business
For lenders and brokers, Acra’s new program can also open a new stream of business entirely. It can even help boost profitability as demand for traditional agency loans wanes.
“The agency market is clearly slowing down,” Lind said. “The number of people able to refinance are tapped out, and we’re seeing that in earning numbers.”
If the Federal Reserve begins tapering MBS purchases later on in the year, as it has indicated it might, this could cause interest rates to rise, shrinking agency demand even more.
As Lind explained it, “This is a great new product for brokers to focus on as that more traditional business decreases.”