How did you fund in 2008-2010 (private lenders drying up)>

27 Replies

I was in college in 2008 and missed RE then...

How did you fund deals then?

My private lenders are telling me they're not lending right now with RE prices set to drop.

I'm guessing soon deals will be plentiful but not funding...

I have cash for a few down payments, but curious beyond that

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

@Joe Cassandra

     Hey Joe,  

    You have some good questions. As in life, so in real estate; it is about who you know. Many times this phrase has been utter and it holds true. Lenders and Hard Money Lenders have been closing their doors over the past couple days. I can not give names, but they are big players and people will see them pulling out of their deals in the next coming days. Some of these Investor-backed Lenders will become dried up, because the Investors have and will be pulling their funds for good.

    Now is a good time to find and align yourself with a Lender that will be with you and by your side during these times. Having a relationship like this can prove to be very lucrative and allow you to seize these opportunities. Many people have heard the success stories and deals from that time period; well, now is your time to have your own. Don't be left on the sidelines because you were to nervous to take a risk. You might actually enjoy the freeing feeling of it. Having the ability to control your everyday life is one of the best and amazing feelings, and its by these risk we take that allow us to obtain this.

     We look forward to this journey with you all. You can get your deals funded, that ones that do it right are still around.

Let's Connect!

I agree with the above - I know of at least (7) Seven of the NON-QM - Institutional lenders that have quit the D.S.C.R loans //No Doc Loans // Professional Investor loans. Had one do that with docs in Escrow :-( Flagstar was the largest bank warehousing those --They quit providing warehouse lines for Non QM lenders - Home Express -TheLender- New Rez- Royal - DeeepHaven - Carrington - Angel Oak etc - That all was securitized and investors have totally redefined risk. Find a lender/investor that has already tightened their LTV's and credit score requirements and you should be good for a few more months and they will adjust. Personally, this is an opportunity as banks tighten up we will see loans that would never have needed us 6 months ago. Reminds me of doing Blackstone deals in 2009 when they were the only Hedge Fund lending on rentals and rental portfolios. Travel Well Richard

@Joe Cassandra First, I would wait to see how this all plays out, the asset based lending may come back sooner than you think. I don't think anyone really knows for sure at this point. 

As far as getting private money just keep on networking every single day with high net worth individuals and get your name out there. Your reputation and experience is what helps you get private money in a downturn.

Originally posted by @Joseph Cacciapaglia :

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

Sounds like a first step may be backwards from what everyone's said about "if you have a good deal, money will find you." Maybe it's now, I need to reach out to more private and HML now to make sure they're still in business.

There's a lot of uncertainty of if this crisis will go on for just a few months or we're looking at a multi-year recovery. 

I haven't pulled any of my marketing, but now I'm thinking if I get a good deal, I can't assume it'll be funded.

 

Originally posted by @Richard Scholtz :

Personally, this is an opportunity as banks tighten up we will see loans that would never have needed us 6 months ago. Reminds me of doing Blackstone deals in 2009 when they were the only Hedge Fund lending on rentals and rental portfolios. Travel Well Richard

Hey Richard, what do you mean that we will see loans that didn't need us before? So in 2009, Blackstone didn't do any investment lending and they started to? You expect more of that?  

My thought process is ---> banks aren't making money if they aren't lending. HML make $0 if they aren't lending...so there have to be some out there still lending or there's no money anywhere :)

 

Originally posted by @Michael Noto :

@Joe Cassandra First, I would wait to see how this all plays out, the asset based lending may come back sooner than you think. I don't think anyone really knows for sure at this point. 

As far as getting private money just keep on networking every single day with high net worth individuals and get your name out there. Your reputation and experience is what helps you get private money in a downturn.

Thanks, Michael. 

Question...since you're a RE agent. Would networking with some RE agents who work with investors be a good avenue to find potential private lenders? 

Was curious if RE agents would be open to that kind of relationship. 

I stumbled on my private lenders because I called their listing...the RE agent WAS the investor...got to talking and they offered to lend. Or, another time, I saw it was an investor, sent the investor an email about their listing and seeing if they had any others...and that started another convo. 

Was curious on your thoughts. 

I have another business outside of RE (marketing) and can't spend 2 hours per day / 5x per week networking...

I've thought about direct mail to draw in investors (you can't blatantly ask on the first send), but  hear there's a lot of gray area.

 

It's an adjustment between the buyers,sellers, lenders.

Buyers might think it's not that bad this loan still make sense but maybe I need to ask a little off the price more. Sellers think this is a temporary knee jerk reaction to a short term (hopefully) virus but their property they are selling is still solid at current agreed to price. Lenders likely think worse case sky is falling and only want to do fire sale deals to curb risk in their minds.

So buyers like value but still want good loans, sellers hope down turn is temporary so not equity eroded on resale, and lenders planning for extended doom and gloom downturn.

What you can have is a cool off period in the market for deals. Lenders want to wait thinking the worst will happen. Sellers want to wait thinking the situation will improve back to normal. Buyers hope they can still do deals that make sense no matter the asset class. 

Any strong seller won't take a fire sale and will go tell the lender and buyer to pound sand. There will be motivated sellers that have to sell due to timing constraints bu they are usually more under capitalized with just okay assets.  

Originally posted by @Joe Cassandra :
Originally posted by @Joseph Cacciapaglia:

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

Sounds like a first step may be backwards from what everyone's said about "if you have a good deal, money will find you." Maybe it's now, I need to reach out to more private and HML now to make sure they're still in business.

There's a lot of uncertainty of if this crisis will go on for just a few months or we're looking at a multi-year recovery. 

I haven't pulled any of my marketing, but now I'm thinking if I get a good deal, I can't assume it'll be funded.

 

You can say it's a change to that saying, or maybe the definition of a "good deal" has just changed overnight. Reaching out to HML and private lenders to see how they define a good deal in this market, is a great first step. I spent a decent amount of time reaching out to lenders last week, and will continue to do so for the foreseeable future.

Originally posted by @Joseph Cacciapaglia :
Originally posted by @Joe Cassandra:
Originally posted by @Joseph Cacciapaglia:

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

Sounds like a first step may be backwards from what everyone's said about "if you have a good deal, money will find you." Maybe it's now, I need to reach out to more private and HML now to make sure they're still in business.

There's a lot of uncertainty of if this crisis will go on for just a few months or we're looking at a multi-year recovery. 

I haven't pulled any of my marketing, but now I'm thinking if I get a good deal, I can't assume it'll be funded.

 

You can say it's a change to that saying, or maybe the definition of a "good deal" has just changed overnight. Reaching out to HML and private lenders to see how they define a good deal in this market, is a great first step. I spent a decent amount of time reaching out to lenders last week, and will continue to do so for the foreseeable future.

 Yeah I'll do the same.

What were most of them saying the ones you talked to?

Originally posted by @Joe Cassandra :
Originally posted by @Joseph Cacciapaglia:
Originally posted by @Joe Cassandra:
Originally posted by @Joseph Cacciapaglia:

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

Sounds like a first step may be backwards from what everyone's said about "if you have a good deal, money will find you." Maybe it's now, I need to reach out to more private and HML now to make sure they're still in business.

There's a lot of uncertainty of if this crisis will go on for just a few months or we're looking at a multi-year recovery. 

I haven't pulled any of my marketing, but now I'm thinking if I get a good deal, I can't assume it'll be funded.

 

You can say it's a change to that saying, or maybe the definition of a "good deal" has just changed overnight. Reaching out to HML and private lenders to see how they define a good deal in this market, is a great first step. I spent a decent amount of time reaching out to lenders last week, and will continue to do so for the foreseeable future.

 Yeah I'll do the same.

What were most of them saying the ones you talked to?

Some are pausing their lending. Most are lowering their LTVs and raising their interest rates some. Many are going to focus more on experienced borrowers. 

Originally posted by @Joel Owens :

It's an adjustment between the buyers,sellers, lenders.

Buyers might think it's not that bad this loan still make sense but maybe I need to ask a little off the price more. Sellers think this is a temporary knee jerk reaction to a short term (hopefully) virus but their property they are selling is still solid at current agreed to price. Lenders likely think worse case sky is falling and only want to do fire sale deals to curb risk in their minds.

So buyers like value but still want good loans, sellers hope down turn is temporary so not equity eroded on resale, and lenders planning for extended doom and gloom downturn.

What you can have is a cool off period in the market for deals. Lenders want to wait thinking the worst will happen. Sellers want to wait thinking the situation will improve back to normal. Buyers hope they can still do deals that make sense no matter the asset class. 

Any strong seller won't take a fire sale and will go tell the lender and buyer to pound sand. There will be motivated sellers that have to sell due to timing constraints bu they are usually more under capitalized with just okay assets.  

 What are you seeing on the commercial retail side, Joel? I'm right near you and see many stores still open, but many restaurants empty.

Is that outlook putting breaks on lending on that side?

Originally posted by @Joseph Cacciapaglia :
Originally posted by @Joe Cassandra:
Originally posted by @Joseph Cacciapaglia:
Originally posted by @Joe Cassandra:
Originally posted by @Joseph Cacciapaglia:

Funding deals was the hardest part during that time period. There were great deals everywhere in my market, but money was very hard to find. I didn't do as many deals as I would have liked, but the ones I did were with high net worth individuals and one newly formed real estate fund. However, they're not going to be excited about the deal you put together two weeks ago. They're going to want a higher return, lower risk profile, or both. There are still private lenders and HML in the market today, but they're upping their pricing and lowering LTVs.

I don't expect to have the same prolonged liquidity crisis that we had last time (I certainly could be wrong about that). There were a lot of structural issues back then that don't exist today. However, going forward, it's going to make more sense to look for deals that appeal to the lenders that are still in the market, than to try to find a lender that fits your type of deals. That might mean adjusting your strategy, geography, etc. 

Sounds like a first step may be backwards from what everyone's said about "if you have a good deal, money will find you." Maybe it's now, I need to reach out to more private and HML now to make sure they're still in business.

There's a lot of uncertainty of if this crisis will go on for just a few months or we're looking at a multi-year recovery. 

I haven't pulled any of my marketing, but now I'm thinking if I get a good deal, I can't assume it'll be funded.

 

You can say it's a change to that saying, or maybe the definition of a "good deal" has just changed overnight. Reaching out to HML and private lenders to see how they define a good deal in this market, is a great first step. I spent a decent amount of time reaching out to lenders last week, and will continue to do so for the foreseeable future.

 Yeah I'll do the same.

What were most of them saying the ones you talked to?

Some are pausing their lending. Most are lowering their LTVs and raising their interest rates some. Many are going to focus more on experienced borrowers. 

 Took your advice and emailed a few I've worked with. One is doing no deals. Another is going from 90% pp/100% rehab to just 80% ltv and no repairs...

My commercial buyers are mostly buying stabilized properties with high quality investment type grade retail tenants. Speculative lending right now is drying up some but high quality assets lenders are more bullish on as a (flight to safety) for their loan portfolios. They already likely have some mediocre  loans tied to just okay assets.

I am still closing deals with clients as a commercial broker.

We started lending in 2010 and the pre-pandemic differences are profound. As @Joseph Cacciapaglia said, there was no money after the 2008 crash and I’m not even talking about the banks. Private/hard money lenders were not nearly as common then as now but great deals were plentiful.

We could go to a real estate club in 2010 and there would be 15 flippers in the room with terrific deals by anyone’s standards, then and now, and just one or two lenders. You had to be very careful – choose only experienced rehabbers who knew how to find good deals, could rehab sensibly, and knew how to sell without being greedy. Prices then were still falling but beginning to stabilize. It wasn’t until around 2012, and then when the hedge funds started buying foreclosures a few years later, that prices were clearly on the rise.

We did not loan at any price before any of this. Housing prices were just too unstable and unpredictable from about 2008 to 2010. I assume we are heading into that exact situation now. As a result, we are standing down for a while until the dust settles and our economy shows some stability. Could be months, but more likely years.

Within the last five or six years private lending has exploded. There are numerous billion dollar funds, many backed by Wall Street, and the competition is fierce. Even before the pandemic, rates were dropping to unsustainably low levels, in my opinion, and it was hard to foresee anything but a shakeout. I thought it would come naturally from a decline in rates and a lack of competitive advantage among the larger lenders, but it’s clear the pandemic, and what’s likely to be a global recession, is now the driver.

There are already a handful threads here from lenders asking how they can foreclose on the seconds they made. Few heeded the warnings about loaning in second position. Many/most of these lenders, unfortunately, will be wiped out -- especially since asset values will likely fall. The next shoe to drop, will be from first position lenders. Hopefully, those who made sensible, low LTV loans, to knowledgeable borrowers will come out ok. Many still, will be hurt.

Not naysaying. This is just my observation having gone thru it once already. I know everyone is chomping at the bit, expecting great deals to fall from the sky, but now is a great time to be very careful, @Joe Cassandra .

Since no one knows what a good deal is now, and I’m talking flips, I’d be very leery of buying or loaning on anything until the dust settles. Anyone who says they are still loaning, full-steam ahead, rah rah rah, let’s connect, is trolling.

@Jeff S.   good summation of what happened and were we are at.

there was certainly a race to the bottom on rates..  and of course what your seeing is those that used private folks to lend those are the first to stop.. then the brokers who broker private folks money will start to lose investors.

the big funds are set up so will be interesting to see how they move forward.. I had a medium size fund payoff one of my loans last week they took over my position and i think they took some equity.

for us.. no experience new in the business will not get a look.

I fear this is going to cost those people money becasue you will have the trolls  HEY we will fund just send me 3k up front you know the company..  they will probably kill it with non refundable deposits.

And of course its all regional.. I had a nice chat with my Bank in Portland OR last week I have 30 lots ready for spec loans and they still are going to give me 12 loans.. we have over 30 folks on our waiting list.. its a pretty cool site so that could be part of it.. but in that market there is still a shortage of houses you see some small concessions but if this cycles in 60 to 90 days my inventory will be ready late Q 4 early Q 1 so we sure hope and prey we all stabilize this summer.

Where there will be deals though is in the areas of the country that are dominated by non owner occ SFR transactions.. lots of old fixers those could see some prices fall.. but they are already so cheap its not anything earthshaking.

@Joe Cassandra Hi Joe. You are right, majority of private lenders that are backed by individual wealth and credit facilities that are tied to the stock market are closing up shop or delaying fundings. The key is to find a private lender in full control of their own funds that have been raised through being entrepreneurs and investors themselves. Balance sheet private lenders have the ability to move quickly in a down market to help position you ahead of the recovery curve.

Originally posted by @Jeff S. :

We started lending in 2010 and the pre-pandemic differences are profound. As @Joseph Cacciapaglia said, there was no money after the 2008 crash and I’m not even talking about the banks. Private/hard money lenders were not nearly as common then as now but great deals were plentiful.

We could go to a real estate club in 2010 and there would be 15 flippers in the room with terrific deals by anyone’s standards, then and now, and just one or two lenders. You had to be very careful – choose only experienced rehabbers who knew how to find good deals, could rehab sensibly, and knew how to sell without being greedy. Prices then were still falling but beginning to stabilize. It wasn’t until around 2012, and then when the hedge funds started buying foreclosures a few years later, that prices were clearly on the rise.

We did not loan at any price before any of this. Housing prices were just too unstable and unpredictable from about 2008 to 2010. I assume we are heading into that exact situation now. As a result, we are standing down for a while until the dust settles and our economy shows some stability. Could be months, but more likely years.

Within the last five or six years private lending has exploded. There are numerous billion dollar funds, many backed by Wall Street, and the competition is fierce. Even before the pandemic, rates were dropping to unsustainably low levels, in my opinion, and it was hard to foresee anything but a shakeout. I thought it would come naturally from a decline in rates and a lack of competitive advantage among the larger lenders, but it’s clear the pandemic, and what’s likely to be a global recession, is now the driver.

There are already a handful threads here from lenders asking how they can foreclose on the seconds they made. Few heeded the warnings about loaning in second position. Many/most of these lenders, unfortunately, will be wiped out -- especially since asset values will likely fall. The next shoe to drop, will be from first position lenders. Hopefully, those who made sensible, low LTV loans, to knowledgeable borrowers will come out ok. Many still, will be hurt.

Not naysaying. This is just my observation having gone thru it once already. I know everyone is chomping at the bit, expecting great deals to fall from the sky, but now is a great time to be very careful, @Joe Cassandra.

Since no one knows what a good deal is now, and I’m talking flips, I’d be very leery of buying or loaning on anything until the dust settles. Anyone who says they are still loaning, full-steam ahead, rah rah rah, let’s connect, is trolling.

Thanks, Jeff. We'd put in a bunch of offers on flips in Feb and got none, so probably was a blessing. 

I agree with being careful with flips. We're stepping back from flips right now and just going after rentals (closing on one next week). I just turned away an off market lead even though it was a decent deal because I didn't even know if I could find a lender to jump in with me in the short amount of time he needed to close...plus, if I'd hit ARV.

I don't think we'll hit 2008-type scenarios...although since I wasn't in RE at the time, i can't speak on it...just what I've heard from those who lived it and research. 

HMLs I've reached out to are already pulling back and not taking on any deals, no matter how good. 

For me, who relies on private and HML, I'll be asking for longer close times to find the right lender.

 

There are still a number of HML companies lending. Most that are still lending have peeled their guidelines back to a place they can feel comfortable.

If you have the cash to bring into the deal, you will find some lender willing to leverage you. 

Its a tough time, yes. Many HNWIs however are looking for more stable, cash-flowing real assets to deploy cash into as they're fleeing public markets, and bonds/treasuries are paying dismal returns. So we likely won't see strong interest from investors for 'fast money' flip loans (i.e., speculation), but should still find demand from debt/equity partners in long-term buy-and-hold multis.

It all comes down to your reputation, experience and the quality of the deal, but if like most of us you don't have lots of time to hang out at country clubs, consider reaching out to financial advisors and wealth managers who are being hounded by clients looking for a safe(r) harbor for their capital.