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Lending

How COVID Has Changed CRE Lending

Debt Markets Are Improving by the Day by Cynthia A. Hammond Capital allocated to lending on commercial and multifamily real estate is plentiful today, especially for individual investments of over $30 million. The COVID shutdown caused lenders and investors to pull back from originating loans in the 2nd & 3rd quarters of 2020. As recovery from the COVID induced recession commenced, investors were awash with capital to be placed in commercial real estate debt. This was caused by existing funds allocated to commercial real estate (“CRE”) debt that was not invested in prior quarters, and new money being allocated to CRE debt and equity. Some lenders found themselves short staffed, as key staff had changed jobs during the recession, or were reassigned out of loan originations. Faced with large investment goals and limited staff, many lenders have increased their minimum loan size. In our survey of 40 middle market life insurance company lenders, 27% increased their minimum loan amount in 2021 to over twice the prior year’s minimum loan, from a 2020 average of $7 million minimum loan to a 2021 average of $15 million. Still, 19 life companies in our survey are actively making loans of $10 million or less. These small to mid-sized life companies generally lend through correspondent mortgage bankers in local markets. These mortgage bankers originate, underwrite, and often service the loans for their life company lenders. For a borrower to obtain a loan from these companies, they would work through the correspondent mortgage banker. The life companies generally charge zero or minimal loan origination fees, and the mortgage banker obtains an origination fee for the loan, paid by the borrower. These lenders generally will not take a loan from the borrower directly. Many do not require repayment guarantees. Different Approaches to CRE Lending Lenders writing smaller commercial property loans of under $15 million are composed of banks, life insurance companies, agency lenders and securitized CMBS lenders. Many national bankshave reduced or reached maximum capacity for construction loans, especially on multifamily properties, and are now competing head-to-head with life insurance companies for fixed interest rate loans of 3-10 years, often with minimal fees assessed for early prepayment of the debt. Community banks are stepping in to the gap, writing construction and permanent loans, both with personal guarantees. However, some will require no repayment guarantee at a leverage of 55% +/- loan to value or less. Life insurance companies emerged from COVID with different approaches to CRE lending. Interest rates dropped sharply in 2020, with the 10-year Treasury bond yield dropping from 1.88% on 1/2/20 to a low of .54% on 3/9/20, to 1.57% on 5/9/21. CRE loans are generally priced off the 10-year Treasury yield, and/or in comparison to corporate bonds of similar risk. Faced with very low rates on newly originated CRE loans, some pivoted their loan program to writing “bridge-light” loans, with interest rates fixed or floating of 3% or more. These 2 to 5-year bridge loans are made for a property in transition, with light value-add work to be done, and existing cash flow that can cover debt service on an interest only basis. Others are making fixed rate construction/permanent loans, heavy value-add bridge loans or mezzanine loans for new construction of multifamily or industrial properties. The majority of life companies decreased their maximum loan value to be closer to 60%, and offer very low fixed interest rates in the mid to high 2’s for leverage of 55% or less. Select life companies are writing non-recourse permanent loans at 70-75% of value, with 10 year fixed rates generally at 4% +. CMBS lenders became active again beginning in the 4th quarter of 2020, following a 39% decline in volume in 2020 from 2019. Commercial Mortgage Alert published a survey of 19 lenders and other industry pros, who predict a 28% increase in CMBS volume in 2021. Year to date, U.S. CMBS volume is 14% higher than 2020. Representative rates for a variety of loan and lenders are shown below. What Are the Desired Asset Types? Property types most desired by lenders are industrial, multifamily, self-storage, and medical office. Less favored are retail and office. For non-multifamily properties, most lenders are seeking diverse rent rolls with longer weighted average remaining lease terms or long-term leases with credit tenants generating sufficient income to cover debt service. CMBS lenders are filling in the gap in demand from life companies and banks to make non-recourse loans on retail and office. Grocery anchored retail and well-designed retail strip centers are being financed by banks, CMBS lenders, and a subset of life companies. Life companies seek a grocer anchor, preferably on a lease with the borrower, who has strong sales and is either in the top 3 in market share in their trade area or is a specialty grocer like Trader Joe’s. Some life companies have specific expertise in understanding retail real estate, and are finding success lending on solid retail centers that may not have all of the most desirable characteristics. An example is a recent loan done by a life company on an established, very well located strip center in an affluent Chicago suburb anchored by a CVS and Ace Hardware. This center had long, strong occupancy history and an excellent location. The life company made a non-recourse 15-year loan with a 25-year amortization, at a rate in the high 3’s, with a rate re-set in year 10, at 68% of appraised value. Industrial properties attract the greatest number of lenders and investors, and all are fighting to get their share of the business. Life companies will finance Class A distribution/logistics projects with very low interest rates and some will agree to close following completion while the property is in lease-up. Multi-tenant and credit single tenant industrial loans are being made by life companies, banks, and CMBS lenders with fixed rate terms from 3 to 25 years, at leverage maxing out at 75%, with the lowest rates for leverage at 60% or less. Multifamily generally ties

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What Lenders Should Look for in a Capital Provider

Choose Your Partners Carefully to Avoid Risk by Eli Novey A Demand for Housing Means a Demand for Capital The need for capital in the residential real estate market has never been more acute. The lack of available housing inventory, already an issue before the pandemic, has only become more complex and widespread in the past 18 months. For more than a decade, the United States has massively underinvested in its housing stock, with the amount of new housing being built woefully unable to keep up with population growth. Housing supply was further constricted as the expected exodus of Boomers from their homes never happened, and mortgage credit issued by banks following the 2008 housing crisis remained tight. As of today, the median price for a single-family home rose the most on record in the first quarter of 2021. For lower-income renters, the situation is even more dire, as the U.S. currently has a shortage of 7 million affordable rental units for families with incomes at or below the poverty line. Not only is capital required for ground-up construction projects to meet this staggering market need, but it is also necessary for renovating and rehabilitating America’s aging housing stock. The pandemic has underscored the importance of this by changing the way people work, and thus changing their housing needs—both in terms of the geographies they wish to live (suburbs over dense urban areas) and in the features they desire for their homes (such as home offices and swimming pools). Despite this great need, residential real estate lenders should remember that not all companies providing capital are created equal or hold themselves to the same high standards. When choosing who to partner with, lenders should differentiate candidates based on the following criteria: access to capital, a consistent and reliable funding process, excellent service levels, industry expertise, and a disciplined approach to credit. Access to Capital It should go without saying, but reliable access to capital should be among the most important considerations when seeking a lending partner. For the lenders, much of this value comes down to repeat business. Home renovation projects are typically short term, with most loans having a duration of less than two years. Given this timeframe, borrowers are in the position of having to generate a constant stream of new opportunities, especially considering renovation stock has a finite supply in today’s housing shortage market. Having a reliable lending partner with ready access to capital saves valuable time, allows for faster turnover, and builds stronger relationships for lenders. Consistent and Reliable Funding Process Lenders in the residential bridge loan industry depend on volume to meet market demand, which in turn relies on a steady stream of available capital. In choosing a capital provider, it is critical to select a partner that will purchase loans from lenders on a steady basis—allowing for a measure of predictability and liquidity to apply to new opportunities. A good capital provider provides transparent guidelines to lending partners for guaranteed execution. Lenders should be cautious of those who ask them to share all the loans they are working on and only buy the ones they like, rejecting many others from a “black box” approach. This approach disadvantages regional lenders, who can only service so many loans at one time and want them off their books as quickly as possible. Industry Expertise and Recognition Capital without knowledge has no value, so the provider lenders choose to partner with should have a deep understanding of mortgage credit in the residential and commercial space. They should be well-versed in real estate lending, capital markets, securitization, asset-liability management, asset management and credit. A lack of understanding of the monetary supply chain can lead to false assumptions, incorrect leverage, and unreliable service to the borrower. Furthermore, the provider a smart lender chooses to partner with will be forward-thinking and can deploy innovations from overseas to address needs generated by the pandemic. For example, as more people seek single family home rental options in the suburbs, the market is responding with increased renovation projects targeted towards long-term rentals instead of resale. Toorak Capital Partners has adopted a lending model that determines credit based on the income generated by the rental property itself (not solely on the income of the borrower) and gives borrowers another option for growth. A Disciplined Approach to Credit Lenders should only consider capital partners that center the borrower experience and prioritize getting property valuations right. When valuations are accurate on the front end, this helps ensure that large losses are incurred on the back end, which eliminates significant risk. Beyond credit checks and related due diligence performed at the time of initial loan funding, borrowers are required to substantiate renovation progress of their investment property before they can draw on any portion of the loan. This process provides for an additional touch point during the loan term and can act as a canary in the coal mine that indicates early signs of distress. Excellent Service Levels The ideal capital provider will have impeccable customer service. Ideally, a capital provider invests in technology that streamlines the customer experience for its network of lending partners. This technology can combine ready access to a qualified representative with real-time information on the status of each bridge loan. Such an investment sends the message that immediacy matters—and that experts are in place to handle the inevitable unexpected question. Again, this level of service speaks to expediency. Any issue that is not managed in a timely, professional manner takes away from the lender’s available bandwidth. Grave Implications of Choosing the Wrong Approach If there is ever a cautionary tale of what can happen when capital is provided to lenders in an irresponsible manner, look no further than the Global Financial Crisis of 2007-08. In the years leading up, mortgage-backed securities were often backed by inexperienced lenders looking to “fix and flip” properties in a low interest, capital-intensive marketplace. This asset class suffered from poor visibility into the core asset, limited credit

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Valuation Options for Lending

As an alternative to traditional appraisals, faster and cheaper valuation options are available to keep your pipeline flowing and your confidence high. In this day in age, where time is of the essence and deals can be completed in a matter of days rather than weeks, there is still one part of the process that can hit a snag rather frequently: Full appraisals can take time and are expensive. However, there are ways to obtain an accurate valuation in a timely manner, without having to break the bank. Hybrid appraisals and evaluations open an opportunity to give your business an edge. They enable you to obtain a valuation quickly to assess risk and to proceed without having to wait a week or more. In addition, many companies allow custom options that allow you to request the kind of information most important to you when assessing risk. Evaluations Evaluations are the fastest and cheapest option in many cases. These can be completed by in-office experts in various companies or local market experts such as real estate agents. They are typically supported by robust data sets and put through rigorous quality control practices. The process can be bifurcated, leveraging a third-party inspection from an inspector, real estate agent or tenant/borrower. The valuations specialist will perform the valuation component and provide a value based on their comparable analysis and the inspection. The advantage of an evaluation is that you do not have to sacrifice valuation accuracy for the time and cost savings. Companies today are using many tools that empower valuations experts to perform consistently accurate valuations. If you have any apprehension about using evaluations, test these products against your appraisals and see if you are getting similar or better results. Dodd-Frank recognizes evaluations as a credible valuation source for transactions below $400,000. There is no transaction limit for any portfolio lending or nonlending transactions. Hybrid Appraisals Hybrid appraisals are another way to reduce cost and timelines and obtain an accurate valuation. This product still leverages the expertise of an appraiser, while obtaining the inspection from another party—either a local inspector, real estate agent or borrower/tenant. The appraiser reviews the inspection and performs the comparative analysis to provide a value. Timelines on hybrid appraisals typically are much shorter than traditional appraisals. They typically cost less as well. If your investor requires an appraisal, this may be a good step in the direction of using alternative products in many situations. When to Use Alternatives Leveraging alternative products is not always the way to go. For complex properties, it makes sense to order an appraisal and have an appraiser perform the inspection. Alternative products should be used in data rich areas where risk is lower than it would be in a more complex scenario. Appraisals may be necessary if you need more information about the asset, such as obtaining a full sketch. However, if the property is in a data-rich market and you have an acceptable amount of knowledge about the asset, then an alternative product could be much more reasonable. Understanding the applicable uses for each product will help determine what should be used and when. In addition to using an alternative valuation as the primary product for the transaction, it is also becoming more popular to introduce different types of alternative products throughout the process for due diligence or initial risk analysis. You may need to learn more before deciding to lend on a particular property. Leveraging an alternative valuation at the beginning of your process may be a low-cost way to eliminate deals that exceed your risk tolerance. Alternative valuations are used commonly as the first sniff test on many transactions, especially in the fix-and-flip space. Getting an initial review of the package from a valuation standpoint can help determine whether a deal is worth pursuing, given the kind of lending you want to perform. Allowing for that kind of early quality check allows your pipeline to flow more quickly and prevents wasted time and effort on deals you may not want to pursue. When it comes to investing, risk is everything. That is why choosing the right product that adequately assesses the risk is paramount. That doesn’t mean an appraisal is always necessary—or even the best product to use. In addition, COVID-19 has created the need for changes throughout the valuation process. Those changes have created opportunities as well as challenges. Many providers now allow the option of having a borrower/tenant perform the inspection. When cooperative parties are involved, that can expedite the inspection process exponentially. Then, leveraging that inspection, you can combine it with several valuation products that are appropriate for the type of asset you are dealing with. These tenant-performed inspections typically leverage a web-based application or an app that can be downloaded that will walk the tenant/borrower through a basic inspection process. Many apps will capture the location of where the photos were taken for confirmation. Knowing when and where the photos were taken provides yet another degree of confidence. These kinds of developments have been game-changers in the age of COVID-19, not only by reducing timelines but also by increasing safety for occupants. When it comes to lending in the current landscape, creativity is necessary for differentiation, competitive advantage and customer service. There are many creative products in the marketplace. Consider testing them out and seeing how they can benefit you, your processes and your customers. Your competition will wonder how you got across the finish line so much faster.

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Real Estate Investing Outlook

What’s the industry look like for the fourth quarter of 2020 and beyond? Heading into the fourth quarter of 2020 is the perfect time to evaluate what impact, if any, the pandemic has had on the real estate industry as well as predict what investors should be prepared for as this tumultuous year comes to a close. Is the Housing Market Recovering? Let’s get right to the question that so many in the real estate professionals are wondering about: Has the housing market recovered from the coronavirus? According to Realtor.com, “the Realtor.com Housing Market Recovery Index reached 103.7 nationwide for the week ending July 25, posting a 2.7 point increase over last week and bringing the index 3.7 points above the pre-COVID baseline.” So, in short, yes. Real estate activity in the U.S. has increased throughout the summer, with buyers and sellers hitting their stride in July and August as they began to recover from any disruptions the pandemic caused earlier in the year. In fact, growth in sales, demand and prices have moved well above 2019 levels. Buyers are now ready to take advantage of historically low mortgage rates, which in turn has given sellers confidence to list again, usually at record prices, due to the lack of supply that existed long before the pandemic. According to an Auction.com analysis of weekly MLS data conducted in early August, “home prices have increased an average of 3% compared to a year ago in the nine weeks since the pandemic and national emergency declarations.” Although home prices may have dipped in late April, they quickly rebounded, with no long-lasting harm done. Across the board, key housing indicators are showing that the market has recovered and will continue on a positive trend. However, real estate professionals should keep a close eye on the market heading into the fall as a looming second wave of COVID-19 could easily affect this rebound. This remains the biggest concern when predicting what the end of 2020 and first quarter 2021 will look like. Will Supply Rebound? Although sellers are reentering the market, they are doing so cautiously, and their comeback has not created a significant increase in housing supply. A Realtor.com national housing report from July showed that “national inventory declined by 32.6% year-over-year, and inventory in large markets decreased by 34.8%.” As there was already a shortage pre-COVID, it is not surprising that supply has not rebounded; however, this continued lack of housing only exacerbates investor concerns over overinflated housing prices and lack of affordability in the market. Although some investors have forged ahead despite market challenges, with some buying up more properties than ever before, many are waiting. The biggest question mark right now is whether an abundance of distressed inventory will flood the market once federal forbearance programs and foreclosure moratoriums end and give investors a larger buying opportunity. Many experts believe this will absolutely be the case. In a U.S. Foreclosure Market Report that ATTOM Data Solutions released in July, Rick Sharga, ATTOM’s executive vice president, said, “It’s inevitable that there will be a significant increase in foreclosures once these moratoria have expired, although it’s unlikely that we’ll see default rates reach the levels we saw during the Great Recession.” Sharga attributes this to the fact that current and projected market factors, including record levels of homeowner equity and high demand, will make it easier for distressed owners to sell their property as opposed to losing it in foreclosure. So, while it may not be a question of if an increase in inventory will happen, investors are still left wondering exactly when it will happen. How Will Commercial Real Estate Fare? One area of the market hit particularly hard by the pandemic is commercial real estate. Investors retreated from this space around mid-March and have yet to return. According to data from CoStar Group, a commercial real estate analytics group, “transaction volumes for commercial property remain severely depressed and changes in pricing are moving slower than expected” with a predicted 65% to 70% decline year-over-year. The biggest obstacle that seems to be standing in the way of a commercial real estate rebound is differing opinions on prices between buyers and sellers. Commercial real estate price growth, particularly in retail and multifamily, was already showing signs of deceleration before the pandemic. With the coronavirus hitting retail extremely hard, it remains the most susceptible to further declines in prices. Multifamily is also at risk due to uncertainty as to how it will fare once government assistance for renters runs out. At this point, investors continue to take a wait-and-see approach, causing the general outlook for commercial real estate to remain much less optimistic than other parts of the market. Predictions for 2021 Much uncertainty still exists about the coronavirus pandemic and how it will continue to affect the U.S. housing market. But that has not stopped experts from weighing in on what 2021 will look like. Many economists believe 2021 will be the year we finally see a drop in home prices, mainly because the federal government lacks a long-term plan to extend many of the policies that were implemented in 2020 to keep the housing market afloat. However, these predictions continue to trend in a more positive direction as we get further into 2020. The initial doom-and-gloom that was forecast continues to lift. For example, Corelogic’s Home Price insights Forecast from May predicted a “6.6% year-over-year home price decline through May 2021.” Just a month later, Corelogic revised its forecast, predicting only a 1% year-over-year decline in home prices through June 2021, with 33 states showing decreases. Many economists remain optimistic, predicting that if the market experiences overall declines in housing prices at the beginning of 2021, by the end of next year, it will rebound and experience strong year-over-year growth. At this point, only time will tell. But one thing is certain: The U.S. housing market is resilient and should continue to hold strong despite the challenges and remaining impacts of

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Understanding Hard Money Loans Versus Fix-and-Flip Loans

Why you may be confusing the two and missing out on your best options Fix-and-flip and hard money loans are among the most popular financing programs for investors in single and multifamily homes. Although they are two different products, many people both inside and outside the mortgage and real estate industries believe they are the same. This the furthest thing from the truth. Mortgage originators who work with these types of borrowers should know about the array of loan programs that are designed to meet clients’ financing needs. There is something for everyone, regardless of the type of investor and their loan scenario. Let’s take a look at the differences. Hard Money loans A true Hard money loan is an asset-based loan, which means the financing is based on the loan to value (LTV) of the asset. Unlike the fix-and-flip loan, it doesn’t go through full underwriting, and there are no minimum FICO requirements for the borrower because it does not have many guidelines or criteria. A hard money loan also doesn’t have as many restrictions as one might think, considering that it’s “just money,” So, there’s no worrying about bankruptcies, foreclosures, collections or any other restrictive factors. Many states have nonjudicial foreclosure laws that allow hard money lenders to get their money back quickly if borrowers default on a mortgage. These foreclosure laws make the lenders more comfortable doing a high-risk loan, especially if they are holding the note and not selling it on the secondary market. The biggest misconception borrowers have is that a hard money loan will have a high interest rate even if they are qualified and have a high credit score. The fact is you can receive interest rates and terms that are similar to conventional financing yet still retain the benefits of a loan with no income- verification requirements. Hard money is not a blanket statement that covers all private money loans. Due to the lack of guidelines and underwriting, a true hard money loan is generally capped at 65% loan to value or less. For example, you have a home worth $1 million and you want $500,000 against it (50% loan to value), you are able to receive the money within one to two weeks (from day of application), commonly as a first lien position because, again, it’s just money. This example is normally in the form of a bridge loan, which is short-term financing for a period of 12 to 24 months. One of the main reasons hard money loans are intended for investment properties only is due to the high-cost regulations and the unfortunate existence of predatory lending. For these reasons, you cannot put such high interest rates and cost on an owner- occupied property. Fix-and-Flip Loans Fix-and-flip loans are asset-based loans too. But, they are subject to more underwriting guidelines and criteria. While hard money loans focus solely on the asset, fix-and-flip loans consider both the asset and the borrower. Why do people confuse hard money loans with fix-and-flip loans? Because both the loan and the laws are very similar. They are both private money to an investment property. Virtually all fix-and-flip and hard money loans are funded by hedge funds.  It is possible for the money to come from the same place; however, the underwriting is completely different. Contrary to hard money loans, fix-and-flip loans are usually sold on the secondary market and go through a full underwriting with vastly tighter guidelines. For instance, depending on the lender, fix-and-flip loans have a minimum FICO requirement. Additionally, the borrower cannot have any late payments, foreclosures, judgments or bankruptcy on their credit for 24 to 36 months. Further, a fix-and-flip loan is a rehab loan, meaning it’s a loan that you use to acquire a property and then receive the funds to rehab that property in short-term financing (12 to 18 months). Depending on who you are working with, it is important to bring something dynamic to the table to help you close your loans quickly, efficiently and professionally. Make sure that when you move forward with a mortgage lender you know all the details of your loan, why they are utilizing that program and whether that loan program is being properly presented to suit your needs. The biggest misconception borrowers have is that you must pay a high interest rate for a hard money loan even though you have a high credit score and are a qualified borrower. The fact is, you can receive interest rates and terms very close to conventional financing while still utilizing a no-income verification loan. Hard money is not a blanketed statement for all private money loans. As you look for a lender, consider a provider that offers real estate investors both hard money and fix-and-flip loan programs, among an array of other programs. Further, ensure that your loan scenario is carefully curated by a senior loan officer or professional who can qualify the loan for a mortgage program that best suits your needs. This ensures that each scenario is matched with the lender’s ideal and best possible program.

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The Hard-Money Mindset that is Weakening Your Portfolio

With hard money so cheap, more investors should be using it. By Charles Sells The real estate industry stigmatizes hard money and private money lenders. Unfortunately, that is preventing thousands of investors from generating the wealth and returns they are fully capable of creating. Although private money was once (justifiably) considered expensive and sometimes predatory, those days are long gone. Before you lose one more cent, isn’t it time to change your mindset? What if you were told that it is you preventing yourself from really experiencing growth in your real estate portfolio and business? You would probably be annoyed and shocked. However, the odds are good that some long-held misconceptions about private money are creating barriers between you and the success that today’s real estate market holds. Getting Beyond the Misconceptions Here are three mindsets about hard money that are just plain wrong in today’s lending environment. If you believe any of these, take a minute to adjust your thinking and get ready for some serious growth in your portfolio.  1. Using hard money means giving up returns. So many investors think about hard money this way: “Why give up 8-10 points (or more) if I have my own capital?” But, why wouldn’t you do that? Consider this example: Investor Bob took $500,000 and invested it into five different opportunities at $100,000 each. Each deal was worth far more than $100,000, but Bob was able to spread his money out and dramatically multiply his returns by using leverage to make up the difference on each deal. Investor Bailey, on the other hand, took $500,000 and invested it in just one deal equivalent to any one of the five Bob invested in. Both investors made money, but Bob’s buying power and returns were nearly five times greater—even after he paid back the loans. 2. Private lenders want me to fail. Probably one of the biggest hurdles you will face in terms of accessing hard money is experience. If you don’t have it, you may have trouble getting a loan. But that is precisely because your private lender does not want you to fail. Furthermore, if it appears likely you will fail, a private lender probably will not want to be part of that process. When you work with legitimate private lenders, they will likely know even more about your investment area than you do. They will request appraisals (which they will expect you to provide at your expense). They will demand that plenty of equity remain in the deal after financing, and they will require you to prove real estate is not just some new hobby you picked up last week. In fact, if your private money lender pitches you on taking out a loan using verbiage resembling this familiar refrain, “Invest today, using other people’s money, in your spare time,” then run! With an experienced, reputable hard-money lender, your loan rate will often depend on your ability to prove you have experience in successful investing and liquidating. In most cases, three successful deals will get you in the door with a pretty good rate. Does this mean less experienced investors are out of luck? Not necessarily, but usually you will need to partner up with a more experienced party or work with a third-party servicer who has already established relationships with hard-money lenders. 3. My market’s hard-money lenders are too picky. I’ve tried to finance dozens of wholesale deals and they won’t bite. One thing that will stop investors in their tracks is trying to finance wholesale deals. If you have been finding yourself against a brick wall as you attempt to finance one wholesale deal after another that you found in your meetup, then the problem is likely that you are trying to convince your lender to fund a deal that isn’t worth doing. The heart of your problem is likely your source of inventory: wholesalers. Now, novice investors, pay close attention: There is a type of investor called a wholesaler, but you will probably never meet a truly legitimate one. In the past two years, the concept has invaded our industry that absolutely anyone can be a wholesaler and make a fortune at double-closings. Most wholesalers have no legal right to offer, list, sell or negotiate on behalf of the legal owner of the deals they are trying to do. What that means is the contracts on these deals are so convoluted and have been assigned so many times that often neither the wholesaler nor the seller has any idea which way is up anymore. Good news: A private lender is not going to want any part of that “ghost inventory.” Private-money lenders seldom loan on wholesale deals, but that does not mean those lenders are unreasonable. They could be saving your skin. Where Viable Deals are Located and How to Acquire Them Inventory is a hot topic these days because it is very tight in many markets. How can you achieve consistently high margins on investments? Stay off the beaten path. Keeping clear of the latest, greatest investing fad will give you the best odds of finding good deals and gaining high returns. Here are three “Inventory Truths” to follow to ensure that you’re spending your time looking for leads in markets that will work for you and your investors. 1. Being the big fish in a small fund is better than the alternative. You will hear a lot of investors say they like to operate in really big hot markets because there is more success in the market and they feel that increases their odds of being successful. The idea is not without merit; you’ve probably heard the saying, “A rising tide lifts all boats.” We have different rules in real estate. For nearly all investors, the best option if you want to be in the business of flipping is to get out of your own backyard. Choose your market based on metrics rather than on geography. As you consider a market, make sure

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