Kiavi's Goodwin explains why more lenders don't mean more success in closing fix-and-flip deals
While there is increased focus on finding ways to increase the number of new homes built in the US, there is another sector of construction projects that brokers are focused on serving.
Fix-and-flip remains a necessary part of a plan to increase housing. According to the National Association of Home Builders, the median age of housing stock in the US is 42 years old, and nearly half of all current homes were built before 1980.
Brokers working with fix-and-flip investors have no shortage of lenders to choose from. Bridge loans, DSCR products and hard money options are offered by dozens of companies competing for the same deals, each with its own underwriting quirks and turn times.
However, that range of choice can work against a broker rather than for one, according to a lending executive who works with brokers on this side of the business every day.
Charles Goodwin (pictured top), VP and head of bridge and DSCR lending at Kiavi, said the brokers who do best in this space are not the ones with the longest list of lender relationships.
"My general advice for brokers in this space is to focus on maybe three to five lenders that you can get to know really well in terms of their requirements and processes and outcomes that they can deliver," Goodwin told Mortgage Professional America. "As opposed to trying to have 25 lenders in your arsenal and shopping around to find the lowest leverage or the highest leverage or the lowest price on any given deal."
Building better relationships
Goodwin said brokers who have a more focused list of lenders tend to be the ones who are closing the most deals.
"That is what we see for the very successful brokers in this space," he said. "They tend to stick to a couple that they know really well."
Renovation timelines leave little room for error, according to Goodwin, which raises the stakes on choosing a lender carefully.
"What you want to look for in a lender is certainty and speed of execution," he said. "That is something that Kiavi really has centered our lending thesis around, which is trying to get somebody certainty to a decision and certainty to their loan terms as soon as possible. You just want to avoid those late-stage surprises or changes."
Brokers, according to Goodwin, remain a significant part of Kiavi's business, even though the investors they bring in tend to be somewhat less experienced on average than the company's direct clients.
"That broker tends to work with a little bit less experienced clients, so it is down a little bit relative to non-broker volume," he said. "But it is still a meaningful chunk of our business today, and there are many, many successful brokers out there."
Optimistic despite market headwinds
The nature of the flipping business itself, he said, is part of why a broker's choice of lender matters as much as it does.
"It's just still so hyperlocal," he said. "When you saw some of the large iBuyers or institutions try to flip homes, a lot of them ended up shutting down in the post-pandemic era because it's really hard to flip homes at scale. Every street is different. There are so many different vendors that you could source your materials from, and the labor is so scattered."
The investors succeeding in the current market, according to Goodwin, are the ones that have their operations down to a science.
"It's been quite impressive to see some of the internal systems that our clients have built around project management, in terms of how they order materials and from what vendors and at what timelines, and how they've arranged their partners within the labor that they use," he said. "It's impressive to see people tighten up their operations and continue to have success."
The more experienced investors in this space, he said, have learned not to wait for conditions to improve before doing business.
"A flat market is a market that you can operate in," he said. "We have seen tons of success by small, medium and large real estate investors across the board. Despite what some of the headlines say, you are still seeing many people realize their dreams, finish their first flip or finish their 100th flip, and are doing just fine with things."
Despite the recent headwinds in the market, Goodwin believes those who have navigated this time will come out stronger on the other side.
"We are still very optimistic in the future," he said. "We're grateful for all of our clients and partners and anyone in our space that's been able to manage through this difficult time."
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This article is part of our Monthly Spotlight series, which in September focuses on investor-focused loan products. Full coverage can be found here.
