The Future of California Hard Money Real Estate Loans
Someone asked me the other day, “what does your California hard money loan industry look like for the next few years?”
I never really thought about over-delving into what does the future look like in the California hard money real estate loan business. It seems like I’m just trying to get hard money deals closed and get keep all parties in the transactions happy.
The question forced me to ask myself a few questions and I came up with a few answers:
-What does California real estate in general look like the next few years?
Right now, at least for Southern California real estate, there is a shortage of housing inventory. It seems like we are back to the days of 2005 where a reasonable priced home is getting multiple offers.
In my California hard money real estate loan business, if I am getting deals done when there is hardly any inventory, I would think our industry(and my business in particular) would increase when there is more inventory on the market.
As far as home prices goes, Southern California had a year over year overall increase. The amount of the increase would differ from county to county but San Diego County has increased by 11%. That makes the loans I have done in the past couple of years somewhat safer.
-Where do interest rates look like they are going?
This is somewhat of a no brainer because as of this writing, interest rates for home mortgages are at an all time low. This is great for real estate. Homebuilders are actually building new homes again and some investor buyers are using hard money.
Interest rates, in my opinion, can only go up. The question is WHEN. It appears that our FED chairman Bernanke said recently that he plans to keep rates low for the next 3 years. That doesn’t mean that is a lock solid guarantee that interest rates will remain low.
Things can happen which can force the Bernanke’s hand … say if the dollar crashed or China stopped buying our ridiculously high debt, someone would have to step in and raise rates to make the dollar more attractive to foreign investors.
What is terrific for our hard money trust deed investors in Los Angeles, San Diego & all of Southern California is that they can get 10-12% interest in their money instead of ¼ of 1% in a bank CD.
-Do the banks appear that they will soften their tough lending stance and go back to stated income loans?
I don’t work for a bank but since the stated income loans- otherwise known as liar loans have basically come to a grinding halt. I don’t think their return will happen anytime soon. Now, you actually have to have good credit and show tax returns…some nerve those banks have. Ha!
Granted, with the lower interest rates, you don’t have to make as much money to qualify for a conventional loan but still, you have to be a solid creditworthy borrower in the eyes of the bank.
Many of my clients are fix and flippers. They usually want an answer in 24 hours or less on whether you can do their California hard money loan. With multiple offers on the table, many listing agents are leery of taking an offer from someone using conventional financing. For rehabbers who don’t have the luxury of paying cash, hard money is the way to go.
Other than flippers, there is also the refinance market with hard money loans. These homes must be non owner occupied. Over 30% of all homes in the US are free & clear. Hard money is a good way to get out some quick cash to fix up the property and/or buy more real estate.
As for the California hard money loan business, it should be popular at least for the next 3 years and hopefully much longer.