A Brief Unofficial Analysis of the Private Money Market

A Brief Unofficial Analysis of the Private Money Market

The national economy is in a state of confusion and the local economy is in a state of confusion. So what does this mean for the market for private money lending in Oregon and Washington?

Well of course nobody really knows--and this is just my take on it--but here goes: First of all, let's talk about supply. With the stock market in a free fall, investors are looking for alternative places to put their money. During ten years in this business, I have never had so many investors coming to me and asking me for to place their money. They want it to be safe, and they want a pretty good return.

Are they willing to compromise in terms of the stringency of their requirement and their expectations for a "fair" return? Not much. Why? It's hard to say, but I suppose it has to do with the fact that this is a pretty narrow niche market and investors have come to expect a certain kind of security/return equation. In fact, with regard to their LTV requirements, investors will be even more conservative, as they really don’t trust real estate values to hold. With regard to rates, in ten years of placing these kinds of loans, I have never seen a rate of 10% and very rarely 11%, but lately the iceberg is beginning to melt a bit. I have had investors recently calling me and asking me to place their money in "safe" loans at 10-11%. Keep in mind: this is still the exception and not the rule.

With regard to demand, the following is relevant: In a recent article, Oregon was cited as having the second riskiest real estate market in the nation (in terms of price and the direction it might go, and how fast it might go there). How does this apply to the market for private money? To answer this question, we have to look at who borrows private money. I would say with complete confidence that easily 80% of all of the loans that we do (Fairfield) are to those who buy, sell, renovate, and construct real property with the intention of earning a profit.

The relevant point here is that most sensible real estate investors are likely to be avoiding the long-term hold and attempting to make the good buy and turn properties for a quick profit. This is a market where properties are going back to the banks at a frightening rate, and where this spells bad news for home owners who over-borrowed, this means opportunity for the quick-strike investor. The bottom line of all this is what? Again, it's hard to say, but I think it would be fair to conclude that if you are a lending professional (like most of you on this list), you might want to look particularly for those borrowers who are either: (1) looking to buy and sell property on a dime to make a profit (many times we can loan up to 100% of fix up money and repair money to these borrowers when they are buying well), and (2) Those borrowers who have a longer hold scenario (2-5 year) that fall between the cracks of the more conventional lenders and might bear a 10-12% holding rate to bridge the gap for several years. This second kind of loan is about getting from point A to point B (and point B, of course, is wherever one needs to get to).