The contents of this article will be good news for residential real estate investors with the buy-and-hold objective. After years of uncertainty and volatility, stable market conditions are in the forecast.
Let’s be clear—the financial landscape will not be that of the pre-pandemic years. Checks and balances will remain, but the market conditions affecting investor loans have become less volatile with some level of predictability.
The team at PB Financial Group, a private hard-money lender in Los Angeles, want long-term investors to take advantage of the opportunities ahead. As rate hikes begin to slow, inflation will begin to moderate, and home prices will begin to stabilize.
Investment Property Financing Options
Hard-money lenders will continue to be bullish on investment properties while traditional banks will continue to measure this asset class as risky. Private lenders will seek investors looking to grow their portfolios as the financial landscape levels out.
The investor’s access to capital from traditional sources will narrow as rates and terms become less attractive. In high-interest environments, traditional lenders are mandated to keep more loans on their balance sheets as secondary-market investors do not want to invest in these riskier loans. The more loans that are serviced in-house by banks and credit unions, the less money there is to lend.
Under these conditions, traditional lenders are not recapitalized at the same velocity as in periods of low interest rates.
During periods of higher rates, private lenders are in a competitive position.
Opportunities When Inflation Stabilizes
The Federal Reserve had to take steps to stabilize inflation during the economic fallout from the pandemic. The measures implemented by the Federal Reserve were cutting the lending rate to a near-zero level and purchasing large blocks of low-interest loans. Translation: The Federal Reserve became a large investor in the secondary markets to recapitalize traditional lenders.
However, the Federal Reserve cannot be a major player in the secondary market for long. While higher rates tamp down inflation as the economy improves, this will make investing in the secondary markets riskier for private investors.
The effects of higher rates and the difficulty of securing investors in the secondary markets lead to a competitive advantage for private lenders.
The Outlook for Investment Loans
Although there was a slight drop in the interest rate offered to creditworthy borrowers in February 2023 to 6.32%, the access to capital remains at the 2013 level. For investors, there will be more opportunities to acquire investment properties because there will be fewer primary home buyers in the market. There will be less competition as buyers hold off on purchasing their primary residence.
There is a downside, though. With many current homeowners with a low-interest mortgage, sellers will also hold off placing their homes on the market until rates come down and demand increases.
From the perspective of the investor, this is the time of opportunity when private lenders are more competitive with traditional lenders. The lack of buyers and sellers translates to a robust rental market. The rent rates are driven upward by scarcity.
Higher interest rates, scarcity in the housing inventory, and lower values are not the times for investors to remain on the sidelines. As soon as there is an expectation of lower rates, the competition and values will increase. This period of opportunity will not last.
Now is the time to seek opportunities from motivated sellers and competitive private lenders such as PB Financial Group.
If you are a residential investor and would like to discuss loan structures in this period of opportunity, it is in your best interest to work with a highly reputable and experienced hard-money lender in Los Angeles. PB Financial Group is a premier, direct hard-money and bridge lender that has provided quick funding since 2007 and closed over 2,700 loans. We aim to satisfy your financing needs efficiently.