Creators across the country made record profits last year by doing a few things really well. The perfect storm of low interest rates and hot real estate markets made it possible to land hundreds of millions in loans through sales contracts and agency refinancing. Even a small rise in interest rates in the first quarter of 2021 showed us that mortgage professionals need to expand their offerings this year.
While some advocate for non-agency product packages to make up for lost pipeline volume or obtain a real estate license to vertically integrate your business, one lending CEO believes that in what is technically a segment of the market, the opportunity for residential real estate originators exists commercially, but it’s still about finding a home for people.
Jeffrey Tesch, CEO of RCN Capital (pictured) stated that residential mortgage professionals may find fertile ground in both the booming SFR (single family rental) and fix-and-flip markets. SFRs in particular have become gangbusters in the past year, driven by the huge demand for single family homes and a growing affordability issue for potential homeowners. Tesch believes that mortgage professionals who expand into these businesses can share in the huge success of single-family investors in recent years.
“At RCN Capital we continue to focus on our residential real estate segment, not owner-occupied investment real estate,” said Tesch. “We believe that the market will continue to grow very quickly through 2021 and well into 2022. Single family homes are in high demand and those who cannot afford to buy them will be renting. On the investment side, too, this demand is spurring the renovation of outdated and distressed apartments. “
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The refi boom, explained Tesch, has kept many independent brokers away from this booming market. The volume of demand meant they simply didn’t have the bandwidth to expand their offerings, even in this red-hot segment of the market. However, now that refi volumes are falling dramatically in line with interest rate hikes, Tesch believes that mortgage professionals have a real opportunity to grow in the single-family investment space.
Tesch explained that for realtors and creators who are used to home ownership, its markets are not much of a change. The main difference is in the mindset. These deals are valued as business transactions rather than personal purchases. An individual’s credit rating is less important than what the property can earn from their investment. This enables mortgage professionals to think outside the box and explore the prospects of these homes as a business and the investor’s track record as a business owner. For example, profit margins on a fix-and-flip can be estimated fairly accurately by an appraiser. There can probably be rental income.
Part of the creativity in this area comes from working out the interplay between fix-and-flip loans and rental loans. With property appreciation playing a bigger role in the market, some investors who originally wanted to flip a home might see more value in holding onto it for a few months or years. In the meantime, moving the home to rent can allow them to maintain ownership and pay obligations. As a lender with extensive experience on both sides of this market, RCN can help an investor and their broker switch this model.
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In addition to this experience and flexibility, Tesch emphasized that RCN is a family company with more than a decade of experience in lending. The company builds on its wholesale partners and constantly invests in the training of new broker partners, most recently via a training portal. Your goal is to empower local ones Mortgage professionals with the knowledge of being regarded as an expert in this field. If a mortgage professional is seen as an expert, they always win, said Tesch.
To gain this expertise, mortgage professionals only need to master the basics – learning product groups and using resources like RCN’s training portal to develop a detailed understanding of those markets.
“You will prepare for success through education,” said Tesch. “That’s one of the reasons we developed such a robust training program. We can drive success through this training and our marketing and implementation support. Brokerages that take these steps often leave the gate fairly quickly. “