Private Lending and the Latino Community
The Opportunity for Growth Has Never Been Better
By Juan Huerta
The rise of private money loans in the USA has changed the landscape of investment opportunities, and investment options have evolved significantly. One demographic harnessing alternative financing methods to access these opportunities is the Latino community.
In recent years, there has been a notable surge in the use of private money loans among Latinos as a means to invest and build wealth. CLS Capital is a company founded by four Latinos who have been investing for over 12 years in real estate. Each of the founders has used private financing to build their real estate portfolios.
In the last three years of their careers, it became noteworthy that the Latino community has been growing 50% year over year in the real estate investment space. They became aware of this fact by working with the community, educating the community on private lending, and helping interested investors within the community, which is what eventually gave birth to CLS Capital. In the last three months, the amount of traction and interest that has been generated has been much more than originally expected.
There is a significant need amongst Latinos to borrow money to build their portfolios and build generational wealth. The private money space has become a great financing alternative for this community.
A Change in Investment Patterns
In the last few years, many factors have changed within the Latino community; this has caused some of the changes we have seen in the investment patterns of the Latino community. One of those factors is the inflation that has taken place in the United States. It has been a big eye-opener for many Latinos who have been saving up their money in the hopes that they will return to their country someday and retire on those savings.
They have now realized that the dollar’s purchasing power has greatly diminished. There are better ways to plan for retirement than holding on to cash, even if they are taking the money back to their countries. The community has realized that they need to utilize those funds to purchase their house and/or use them for investment purposes.
Another factor that has pushed this change in the Latino community is the second-generation immigrants who are more aware of investment alternatives in the USA. Freddie Mac and the National Association of Hispanic Real Estate Professionals (NAHREP) have identified the top 25 markets with the most Latinos aged 45 and under who are considered mortgage-ready, ranked by share of those who can afford the median-priced home. Based on this ranking, McAllen, Texas offers the highest opportunity, followed by the Brownsville and El Paso, Texas MSAs.
Despite affordability challenges, the rise in interest rates may benefit some first-time homebuyers. While the rise in interest rates compounded affordability issues, it also had a cooling effect on the market, greatly reducing competition. Nearly 50% of the 25 participants in the NAHREP Top Real Estate Practitioners Survey said their first-time buyers had a harder time getting their offers accepted in the first half of the 2022 market than in the second half.
In 2022, Latinos formed 628,000 new households, the largest single-year gain in over a decade. Latinos added a net total of 349,000 homeowner households, one of the largest single-year gains for Latinos in the last ten years. This is, in part, important for private money as historical trends show that home ownership is the first step for most Latinos to start building wealth.
Due to the barriers that Latino investors and or homeowners have faced, the current interest rates and affordability issues are fine for most of the Latino community. This means that the opportunity for growth for private lending within the Latino community has never been better.
Private Lending and the Latino Community
For many Latinos, especially those who may face barriers in accessing traditional financing due to credit history or immigration status, private money loans present a viable avenue to participate in real estate and other investment opportunities. This accessibility factor has empowered many within the Latino community to enter the investment sphere, particularly the real estate investment space.
Real estate is one of the primary areas where Latinos utilize private money loans. Whether it is flipping properties, purchasing rental units, or investing in commercial real estate, private money loans provide the necessary capital to seize time-sensitive opportunities in a competitive market. Additionally, real estate investment holds significance for many Latinos due to various reasons, such as the following:
Cultural Value
Homeownership is often highly valued in Latino culture. It symbolizes stability, security, and a tangible achievement of success. Many families prioritize owning a home as a means of building generational wealth and providing a foundation for future generations.
Investment in the Future
For many Latinos, real estate represents a long-term investment that can be passed down to children and grandchildren. It is seen as a way to secure the financial future of their families and create a legacy.
Community and Family Orientation
Strong ties to family and community influence real estate decisions. Buying properties in areas where there is a sense of community or is close to family members is often a priority.
Entrepreneurial Spirit
Many Latinos have an entrepreneurial mindset and see real estate investment as a way to create income streams beyond traditional employment. It offers opportunities for entrepreneurship through property management, rental income, or property flipping.
Historical Perspective
Some Latino families have experienced challenges in accessing financial services or have experienced discrimination in the housing market. Consequently, owning property can be seen as a way to overcome these historical barriers and create financial stability.
Diverse Investment Options
Real estate offers a range of investment options beyond primary residence, including rental properties, commercial real estate, or investing in real estate investment trusts (REITs), providing multiple avenues for wealth accumulation.
Market Dynamics
In some cases, the real estate market may present investment opportunities that align with financial goals, especially when considering factors like property appreciation, rental income potential, or favorable financing options. These factors, among others, contribute to the importance of real estate investment within the Latino community, serving as a means for economic advancement, stability, and building wealth.
Fueling the Entrepreneurial Spirit
Aside from real estate, Latinos are also utilizing private money loans to fuel entrepreneurial ambitions. Small business ventures, such as starting a restaurant, retail store, or service-based company, often require immediate capital injection. Private money loans offer the speed and flexibility needed to kickstart these initiatives.
Private money lenders have taken notice of the opportunity with the Latino community and the Latino community’s potential for growth within the private lending industry. The lenders that are taking advantage of this opportunity have done several things in the last years to better suit this demographic and help everybody make a profit. Some of the things that these lenders have changed are the following:
Flexible Loan Criteria
Private money lenders might offer more flexible lending criteria compared to traditional banks and other private lenders. This flexibility can be beneficial for the Latino Community who might have to face challenges accessing loans due to various reasons.
Cultural Understanding
Some private lenders have a deeper understanding of different Latino communities’ needs and preferences. This understanding facilitates better communication and a more personalized approach to meeting financial requirements.
Bilingual Services
Private lenders might offer bilingual services or have staff members who speak other languages commonly spoken within the larger Latino communities. This helps in establishing clearer communication and fostering trust between lenders and borrowers.
Tailored Financial Solutions
Private money lenders might offer tailored financial solutions that cater to specific needs within the Latino community, such as loans for real estate investments, small businesses, or community development projects.
Relationship-Based Approach
Private money lenders often focus on building relationships with their clients. For the Latino community, this personalized approach could involve establishing trust, providing guidance, and offering ongoing support throughout the loan process.
Accessibility and Speed
Private lenders are known for their quick approval processes and accessibility. This speed can be crucial for Latino communities seeking immediate financial assistance, especially in situations where time is of the essence.
Overall, private money lenders might adapt their services and approach to better serve the needs of the Latino community. By offering more flexible terms, personalized services, and a deeper understanding of cultural nuances, they aim to provide accessible and tailored financial solutions to Latino community borrowers.
As private money loans continue to rise within the Latino community, there is a growing need for accessible financial education and resources. Equipping individuals with the knowledge to navigate investment opportunities responsibly and how to access alternative financing options can further empower Latinos to build generational wealth and economic stability.
In conclusion, the utilization of private money loans among Latinos in the USA represents a pivotal shift in how individuals from diverse backgrounds are embracing non-traditional avenues to participate in investment opportunities.
By leveraging these financial tools, Latinos are making significant strides towards achieving their investment goals, fostering entrepreneurship, and contributing to the overall economic landscape of the country.
