Tom Davis, Chief Sales Officer, Deephaven Mortgage
Tom Davis, chief sales officer of non-QM lender Deephaven Mortgage is being flooded with questions about residential transition loans (RTLs) these days.
REI INK asked Tom about these specialized loans, and how investors, developers, and builders are using them to grow their portfolios and their revenues.
Over the past year or so, RTLs have become a conversation topic in real estate circles. Tell me more about these loans.
These are short-term loans for real estate investors, developers and builders seeking to buy, build, rent out, renovate or resell investment properties. They include financing for ground-up construction, fix-and-flips, and bridge loans. The volume of these business purpose loans is surging right now. Experts predict it will reach about $30-$35 billion this year, and that demand will remain robust for the next 10 years.
What is driving this surge?
Today’s insufficient housing inventory is one significant driver, and it’s not going away anytime soon. The U.S. is short about 4.5 million homes, according to Zillow. The combination of still-rising valuations, along with interest rates that are not budging (at this writing) below 6% is leading to an inadequate supply of homes for first-time buyers and others who might want to trade up or downsize. This presents a growth opportunity for enterprising investors, developers and builders focused on meeting their needs.
In many neighborhoods, demand for quality, affordable rentals also exceeds supply. Almost half of U.S. renter households in major metropolitan areas spend more than 30% of their income on rent and would be well-served by more options. Take Millennials, who were born from 1981-1996. They are now the biggest population segment in the U.S., and although they are at prime homebuying age, many of them are still paying rent. The median age of today’s renter, which was 36 in 2000, is currently 42—at the older end of the Millennial demographic. Serving them with more rentals is another opportunity that investors, developers and builders recognize.
What concrete actions is the housing industry taking in response?
The whole housing ecosystem is working together to add more inventory to the market.
New construction now accounts for one-third of home purchases. In addition, 8.3% of Q1 2025 home sales (single-family homes and condos) were flips.
Still, the pace of activity could be much faster. The largest builder in the U.S. brings 80,000 new units to the market every year. That’s significant but it doesn’t fill the inventory gap. Many regional and local developers and builders, who are responsible for 60%-65% of today’s new homes, are bringing 50-100 new properties to market annually. Some have the potential to add more, but they need financing to make it happen.
Increasingly, mortgage brokers and loan officers are offering RTLs to become part of the solution.
How do these loans work?
RTLs are short-term financing options that include:
» Ground-up construction loans which provide new residential properties from the foundation up.
» Fix and flip loans which offer short-term financing for real estate investors to purchase, renovate, and quickly resell properties for profit. The average U.S. home is between 40 and 50 years old. For that reason, even those in relatively good shape are likely to need some updates.
» Bridge loans, which provide the financing to purchase a new investment property before selling or refinancing another property. They enable investors, developers and builders to outpace their competition in tight markets.
RTL features include interest-only payments during construction, draw schedules tied to project milestones, and flexibility when borrowers need to adjust timelines.
How are investors, developers and builders collaborating with lenders who offer RTLs?
Many mortgage brokers and loan officers who offer RTLs are proactively building referral relationships with the people who are building new inventory or rehabbing existing homes. Some of these regional or local builders or developers need new RTL financing sources, as not all the lenders in their community are set up to offer them.
For loan officers, these relationships serve as a steady stream of repeat business, as developers and builders often return for future projects and refer their clients as well.
Though our readers are seeing coverage of RTLs, they are not the only mortgage solutions for business-purpose investors. What other alternatives are these investors tapping into?
There is also a rise in the use of home equity loans/HELOCs for this purpose. The home equity segment in general is fast growing. According to the June 2025 ICE Mortgage Monitor, second lien equity withdrawals approached $25 billion in Q1 2025, an exceptionally high quarterly volume.
To a certain degree, investors’ use of home equity loans and HELOCs is supplanting their use of cash out refinancing, which was popular when interest rates hit rock bottom a few years ago. Then, investors could refinance to benefit from these ultra-low rates, and extract some cash based on their equity to expand their portfolios or improve their existing properties. Now, they’re taking out separate home equity loans or HELOCs for the same purpose—paying current interest rates on these smaller loans, while retaining the more favorable rates on the loans they’ve already refinanced.
Debt service coverage ratio (DSCR) mortgage loans remain in demand among business purpose investors, too. These loans qualify based on the expected rent from the subject property – personal income or employment documentation is not required. Non-QM lending was the mortgage industry’s fastest-growing segment last year, driven largely by the rising popularity of DSCR loans.
Do you have any final words for our readers?
This is an exciting time to be part of the real estate investment and development market. Not only can our community meet a demonstrated need; we still have vast growth potential and a variety of financing alternatives to bolster us, with RTLs being front and center.
Tom Davis is Chief Sales Officer, Deephaven Mortgage. Founded in 2012, Deephaven led the creation and development of the non-QM/non-agency mortgage market and makes its loans available through mortgage brokers and loan officers, in addition to buying loans from correspondents. Contact him at [email protected] or visit deephavenmortgage.com.
