Tyler Stone is the founder and president of Capstone Financial,
which specializes in privately funded loans for commercial and
fix-and-flip investment properties. A national direct lender
launched in 2010, Capstone has simplified underwriting processes for first-lien position investment and bridge financing.
Programs range from streamlined fix-and-flip rehab loans
to one-off funding for “makes sense” deals. Reach Stone
at (480) 336-2828, Ext 107, or firstname.lastname@example.org.
Catch the Fix-and-Flip Wave
Opportunities still abound for brokers willing to venture into the market
By Tyler Stone
It’s a fair bet that many of you have seen “Flip This House,” “Fixer Upper” or “Love it or List It,” which are popular cable TV shows that take viewers on a journey through various fix-and-flip housing projects. Did you ever wonder how to monetize that line of
work yourself as a commercial mortgage broker?
Fix-and-flip loans, typically from private money
lenders, are secured by residential collateral, but they
are considered commercial loans because they involve
nonowner-occupied investment properties. So, you can
easily make them a part of your revenue stream as a
commercial mortgage broker.
As the fix-and-flip craze has swept the nation, powered
by media coverage and rising home prices, it has created
a huge opportunity for additional income for mortgage
brokers working with various types of clients. Whether
they are lifelong clients looking to flip their first house,
commercial clients starting a new business venture or
new clients who have just come in through one of your
marketing programs, the private-lending space for
fix-and-flip deals can be very lucrative for them — and you.
Most private-money fix-and-flip loans close in a shorter
time period than conventional or government-backed
loans, so these deals can supercharge a sales funnel for
a loan originator or an entire office. Compensation for
the mortgage broker is typically in the same ballpark
as what is earned from handling a conventional commercial loan of similar size. So, it amounts to making
the same money for less work.
There are many lending options that brokers can tap
for borrowers working in the fix-and-flip market. Some
of those financing options are local, some are regional
and some are national platforms — making it easy to
work with clients around the country. First, however,
you need a game plan, and that starts with marketing.
You could begin by pushing out some marketing to
your existing clients about fix-and-flip opportunities
and financing. Maybe you could even tie in references to
some of the popular fix-and-flip TV shows as a way to
pique the interest of your target audience. Marketing
concepts that relate to something your target audience
is already familiar with are an effective way to connect
what you are promoting to people’s daily lives.
Before you make any big moves in the fix-and-flip
market, however, review your licensing. You likely already
have a license or two hanging on the wall, but check
with your compliance officer — if you work for a company that has one — or another expert to ensure that
you have what you need on the licensing front to pursue
fix-and-flip deals without running afoul of regulations.
It’s likely that if you just stick to the markets you are
Small is good
already licensed to serve as a mortgage broker, and to
your existing client base, you will be in good shape as you
break into the fix-and-flip niche. Lenders that you hope
to be submitting loan packages to may have differing
legal opinions on licensing requirements as well. So,
find the handful of lenders that you work well with and
give you good service, and go with them to start — just
like you are doing with your other lines of business.
Some commercial mortgage brokers make the mistake
of thinking they are in too small a market to pursue
fix-and-flip business. Alternatively, some brokers think
that because they are not in one of the hot housing
markets — such as Denver, Boston, San Francisco,
Seattle or Phoenix — that there is not enough growth to
support a fix-and-flip line of business.
That’s simply not the case. Even if you are in a second-
or third-tier market, you can still find opportunities. A
report released last year by Attom Data Solutions shows
that, as of second-quarter 2017, among the markets
posting year-over-year increases in home flipping were
Baton Rouge, Louisiana (up 72 percent); Rochester, New
York (up 24 percent); Modesto, California (up 24 percent);
Birmingham, Alabama (up 22 percent); and Grand
Rapids, Michigan (up 20 percent).
Even out-of-the-way communities like Fargo, North
Dakota, hold opportunity. Fargo’s real estate price
gains in recent years have made it one of the hotter post-recession “turnaround markets” in the country, according
to real estate education company FortuneBuilders.
On another front, an article published this past June
in USA Today points out that older urban neighborhoods in cities like Pittsburgh, Cincinnati, Minneapolis
and Omaha, Nebraska, are undergoing a major revival
as high-tech companies expand into the Midwest and
other nontraditional tech markets. The article indicates
that the trend has been picking up in the Midwest
In fact, over the first five months of 2017, according
to USA Today, more than a dozen Midwestern cities
with emerging tech clusters — including Minneapolis,
Detroit, Cleveland and Columbus, Ohio — have “
welcomed more Bay Area transplants than vice versa.”
The housing markets in these Midwestern cities are
in a different class than the booming coastal markets
of Boston, San Francisco or Seattle, but they are
proof that fix-and-flip market opportunities exist in
almost every part of the country.
n n n
For commercial mortgage brokers who are looking for
that next opportunity, the fix-and-flip market could
prove to be the vehicle for raising your business up
a notch. If you agree, take some time to research the
market in your area, develop a smart marketing strategy
and then line up some good lending sources to start
capturing that revenue. n
Fix-and-flip is a real estate strategy in which an investor purchases a residential property with cash or
short-term financing, with the goal of reselling it in
a short period of time for a profit, either as a result
of price appreciation in a hot housing market or by
renovating and upgrading it, or both.
Source: Investopedia and Attom Data Solutions