Fix-and-flip real estate investors are flocking to a loan marketplace where more than a dozen lenders compete to provide short-term loans for rehabbing single-family homes in 48 markets in most U.S. states.
Having proofed the concept in test markets last year, Sherman Bridge announced a national expansion of the investor loan marketplace Wednesday and said it has already closed 2,100 loans totaling more $450 million.
The loan marketplace traces its roots back to a sister company, New Western, formed in 2008 in the midst of the foreclosure crisis as a marketplace for investment properties, co-founder Kurt Carlton told Inman.
“When we started New Western, we realized ‘Wow, these investors want to buy two or three properties and really scale, but they can only afford to buy one because there’s just no money on the street and they have to use cash,'” Carlton said. “So we raised some money and we created Sherman Bridge.”
Sherman Bridge started out as a direct lender, Carlton said, providing loans modeled after FHA 203(K) rehab loans but tailored to investors.
“We did the direct lending and we got that portfolio pretty large,” Carlton recalled. “And then what happened is all these lenders, and Wall Street, came into our space. We looked around and all these lenders were bringing us customers — we were working with them, but we were also competing with them. So we realized the problem for our customers at that point wasn’t capital, it was really deciding what lender to go with.”
So Sherman Bridge developed an underwriting engine that allowed real estate investors to compare offerings from multiple, vetted lenders offering private money loans, also known as rehab loans, bridge loans and construction loans.
“The space was hyper-fragmented, lots and lots of small local lenders, and not every lender was reliable,” Carlton said. “So what we did is we onboarded 15 lenders that were very reliable, had great rates, and high success factors with our customers.”
In many many cases, the Sherman Bridge loan marketplace already has access to information about properties and borrowers through the New Western property marketplace, making it possible to automate other aspects of the process, such as calculating down payments and monthly payments.
“It just made that process really easy,” Carlton said. “We do a little bit of white-glove concierge service to help them onboard to the lender, and we effectively originate that loan.”
Lenders on the Sherman Bridge platform offer loans with interest rates that vary from 10 percent to 12 percent and up, plus fees that average 1 to 3 points, most often for 12-month terms.
Most of the lenders are local, operating in half a dozen markets, giving the marketplace coverage in 38 states (all but Alaska, Idaho, Iowa, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, Rhode Island, South Dakota and Wyoming).
“You can go to Sherman Bridge, and give them the property and they’ve got 15 lenders there,” Carlton said. “They can basically consider that whole process for no extra cost, to guide you to the right lender that fits your property in 30 seconds, not 30 days of research and review of lenders.”
New Western says its property marketplace is used by 150,000 independent investors. Investors who use the Sherman Bridge and New Western platforms typically buy homes in need of renovation, and fix them up and resell or refinance them as rental properties.
“When they refinance, they’re going into the traditional market for that,” Carlton said. “Ideally, if they don’t have a lot of properties, they’re doing a Fannie Mae 30-year fixed-rate.”
Rising home prices have left many homeowners flush with equity, and delinquencies and foreclosures are near historic lows. But Carlton said the distressed property market has undergone a total transformation since the 2007-2009 Great Recession.
“Now the asset is distressed, as opposed to the loan,” Carlton said. Internally, employees at Carlton’s companies refer to the current trend as the “Great Renovation,” he said.
The lack of homebuilding in the immediate aftermath of the Great Recession means many existing homes are getting to be 20 to 40 years old — a window in which they’ll often need major renovations. In many cases, investors have more experience and are in a better financial position to take on more ambitious projects, Carlton said.
“It’s generally, net-net, financially better for the seller [to sell to an investor] because these are big jobs,” Carlton said. “The seller, they might spend $100,000 on repairs, while an investor that has a full-time crew can probably do that for $50,000.”
Carlton estimated that 30 percent of the inventory on the New Western property marketplace comes from real estate agents, who can solicit a cash offer from the company and earn a seller’s commission if their clients accept it.
“They’re starting to realize that New Western is in some ways an alternative to the MLS for this value-added type of property, and they can sell it in a day,” Carlton said.
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.