Short-term lending through a 'unique lens'
This article was produced in partnership with Calvert Home Mortgage Investment Corporation.
Desmond Devoy, of Canadian Mortgage Professional, sat down with Jesse Bobrowski, vice president of business development at Calvert Home Mortgage Investment Corporation, to discuss how his company’s support for real estate investors is making more housing stock viable and is filling the very real need for housing in this tight market.
Canada needs more housing stock, especially affordable housing, and Calvert Home Mortgage Investment Corporation is helping make more housing come on stream through short-term lending.
The company is primarily focused on real estate investors who are buying underutilized houses, and renovating, and/or adding units, and refinancing for long-term rentals, or renovating to sell as a turn-key property.
“Creating housing stock out of underutilized existing housing stock, we see a big need for that… considering where the larger markets in Canada are at with affordable housing and supply in general,” said Jesse Bobrowski (pictured), vice president of business development at Calvert.
“Canadians need affordable housing, and these borrowers are providing that. There’s no shortage of existing housing stock that does not have an opportunity to be rejuvenated and/or densified,” said Bobrowski. “We are passionate about our borrowers’ ability to succeed and, in turn, see quality housing being brought to market from our real estate investor borrowers in major markets in Alberta and Ontario.”
The company will make about 900 loans this year and housing loans will make up about 70% of that number, through short-term lending solutions made with what Bobrowski calls a “unique lending lens.”
Calvert specializes in “short-term opportunities,” which makes them “unique” in the market, he said.
“The bulk of our borrowers are bankable,” he explained. “What’s not bankable is the short-term nature of the loans. We’re getting paid out from real estate investors around every six months, which doesn’t interest the banks and doesn’t interest a lot of the alternative lenders.” Most of Calvert’s loans are fully open, so they can be paid out at any time.
Another unique part of lending short-term to real estate investors is that the properties in question tend to be “worn-down,” and need renovations. “We love to see that,” he said. “We are able to work with the borrower and the broker to see profit in it.” Calvert is in a unique position to be able to lend on properties that traditional banks may not consider lending on.
Calvert takes the business plan of the borrower and values the project as though it has been completed, taking the after-repair value into consideration.
“Provided we see real profit for the borrower, we’re going to look to support it,” Bobrowksi said. “We’re lending for the success of our borrower based on the after-repair value.”
Calvert has its own in-house real estate analysts who conduct property valuations to help them manage their risk.
“It helps us provide a different value proposition,” Bobrowski explained. “We’re not waiting on a value from an appraiser. We can turn decisions around literally the same business day. Being able to fund quickly, assists our borrowers in that they’re able to get the best price possible when negotiating the purchase, which, in turn, makes it as profitable as possible.”
He estimates that his company does as many as 60 valuations a week, providing them with good market data and intelligence, which helps them manage risk as a lender.
Different types of short-term, real estate investor loans
Calvert has different loans available for this market, such as the Flip and BRRR (Buy, Renovate, Rent, Refinance). This can be done with as little as $20,000 down in Ontario, and $10,000 down in Alberta.
“The borrower needs to show the expertise and ability to execute the plan,” said Bobrowski. “Luckily for us, a lot of it is repeat business.”
Then they look to see if the borrower has the capital to service the loan, as well as having the money to actually carry out the renovations.
“Provided those two boxes are checked – the most important box to be checked that it is profitable – we can support them with as little as $10,000 or $20,000 down,” he explained.
He cautioned though that that is one of their more expensive products – their lowest rate is sub-10%, “and that’s if they’re putting 25% or more down on that type of product,” he said.
Calvert also has an interim purchase product, which supports borrowers who are likely to exit a loan in the next year through an A or B mortgage lender or sale, but they are not fixing up the property or renovating it. Again, so long as the property has a value less than $1.5 million, they will value it internally, and will land on a current market value. This usually applies if, say, a bank was unable to come in quickly enough to fund the deal, but they come in later on the deal.
Calvert also does debt consolidation “where we’ll do equity takeout work, we’ll do more term purchases where they’re likely to be with us for a year or more, but that’s about 10% of our book,” he said.
The company has many resources to support its brokers and borrowers including a flip analyzer where the borrower and broker can enter in all of the deal information, like purchase price, renovation costs, after-repair value, etc., “and it will automate the output, it’ll include our pricing, our fee, with the brokers’ fee baked in, and will spit out profitability reports.”
A long history of funding
The company was founded in Alberta in 1975 and has branched out since then to Ontario.
In Alberta, “we have really good traction there. Brokers and borrowers know who we are, but it’s really surprising to us that we’re still operating relatively unknown in the Ontario broker community.”
Calvert supports brokers through education, monthly economic reports and other tools, like white papers, spreadsheets to determine profitability, debt consolidation tools, case studies, and educational videos; in short, “educating the public on how real estate investors are serving the market.”
About 65% of their funding comes from mortgage brokers, “and we believe in the broker channel and want to continue to support the broker channel.” Borrowers are always associated with the broker they arrived with, even when “they call us direct.”
