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In 48 markets in most states, fix-and-flip real estate investors are flocking to a mortgage market where a dozen or more lenders compete to offer short-term loans for renovating single-family homes.
Sherman Bridge proved the concept in a test market last year and on Wednesday announced the nationwide expansion of its investor loan marketplace, saying it has already closed 2,100 loans totaling more than $450 million.
Loan Marketplace's origins date back to sister company New Western, which was founded in 2008 at the height of the foreclosure crisis as a marketplace for investment properties, co-founder Kurt Carlton told Inman.
“When we started New Western, we realized investors wanted to buy two or three properties and expand, but they could only buy one because they had to buy with cash because there was no money in town,” Carlton says. “So we pooled our capital together and created Sherman Bridge.”
Carlton, who is president of New Western, co-founded both companies with New Western CEO Stuart Denier.
Sherman Bridge started as a direct lender, offering loans modeled on the FHA 203(K) renovation loan but customized for investors, Carlton said.
“We did direct lending, and our portfolio got pretty big,” Carlton recalls, “and then all the lenders, and Wall Street, started coming into our industry. We looked around, and all the lenders were bringing us clients, and we were working with them, but we were also competing with them. So we realized at that point that the issue for our clients wasn't capital, it was which lender to choose.”
So Sherman Bridge developed an underwriting engine that allows real estate investors to compare offers from multiple vetted lenders offering private money loans, also known as rehab loans, bridge loans and construction loans.
“The industry was extremely fragmented, with so many small, locally owned lenders, and not all of them were trustworthy,” Carlton said, “so we brought in 15 lenders that were reliable, had great interest rates and had good customer reviews.”
In many cases, the Sherman Bridge Loan Marketplace already has access to information about properties and borrowers through the New Western Property Marketplace, allowing it to automate other aspects of the process, such as calculating down payments and monthly payments.
“It really makes the process easier,” Carlton says. “We provide a little bit of a white-glove concierge service to help you close the deal with the lending institution, and then we actually execute the loan.”
Lenders on the Sherman Bridge platform offer loans with interest rates ranging from 10 percent to 12 percent or more and average fees ranging from 1 point to 3 points, with terms of 12 months in most cases.
Most of the lenders are locally based and operate in six markets that cover 38 states (all states except Alaska, Idaho, Iowa, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, Rhode Island, South Dakota, and Wyoming).
“You go to Sherman Bridge and present your property, and they have 15 lenders there,” Carlton says, “and they basically go through that entire process for you at no extra cost, and instead of 30 days researching and considering lenders, they introduce you to the right lender for your property in 30 seconds.”
New Western claims its real estate marketplace serves 150,000 independent investors. Investors who use the Sherman Bridge and New Western platforms typically buy homes that need renovation, then fix them up and resell them as rentals or refinance them.
“When you're refinancing, you're going to be in the traditional market,” Carlton says, “and ideally, if you don't have a lot of property, you're going to get a 30-year fixed-rate loan from Fannie Mae.”
Rising home prices have given many homeowners more equity and delinquencies and foreclosures are near record lows, but Carlton said the distressed property market has been completely transformed since the 2007-2009 Great Recession.
“Right now, assets are going bad, not loans,” said Mr. Carlton, who said employees at his firm are internally calling the trend a “sea change.”
The slowdown in homebuilding following the Great Recession means many existing homes are 20 to 40 years old and in need of major renovations, and investors often have more experience and better financial resources to take on more ambitious projects, Carlton said.
“Generally, it's economically advantageous for the seller. [to sell to an investor] “It's a big job,” Carlton says. “A seller might spend $100,000 to fix it, but an investor with a full-time crew could probably fix it for $50,000.”
Carlton estimates that 30 percent of New Western's real estate market inventory is from real estate agents, who solicit cash offers from the company and earn a seller's commission if their client accepts.
“New Western is beginning to realize that it's an alternative to the MLS in some ways for this value-add type of property and can sell in a day,” Carlton said.
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Email Matt Carter