It wasn’t all that long ago that John Thompson faced enemy fire in Ramadi, Iraq, scene of one of the war’s fiercest battles. Today, he sits in his office overlooking the specialty mortgage-finance company he co-founded, along with a real estate market and a downtown coming back to life.
“No, I didn’t really like the real estate there,” the former Marine Corps master sergeant says with a chuckle of the Persian Gulf property where the 3rd Battalion, 8th Marines fought. “We thought Atlanta and Greenville would be a better place to do business.”
Thompson started Lima One Capital with John Warren in 2011, and they named their company after their Marine unit in Iraq, one of the last places Thompson served during his 21 years’ service.
Ten years ago last month, Thompson retired from the Marine Corps and moved to Atlanta, where he and Warren began flipping houses. They soon moved to Greenville to open a business that would finance the same kind of investments. Last year, Lima One Capital, where Thompson serves as chief operating officer, originated $1.1 billion in loans.
The company, which lends only to investors of non-owner-occupied properties, counts some 7,000 clients across 42 states. Its products include FixNFlip, providing investors a 13-month bridge loan for purchasing property, renovating it and reselling it, as well as loans for rental- and multifamily-property investors.
Lima One’s 20,000-square-foot office on East McBee Avenue boasts a call center with some 150 employees. Most work from home — at least until next month, when they will begin rotating into the office at half-capacity, Thompson says.
“Probably over the last 10 days, there’s been a lot more activity, and that’s been really nice to see,” says Thompson, who lives a few blocks from his office. “Throughout the month of April, when I did come into the office, it was pretty desolate downtown.”
Coming back strong
As COVID-19 did with every other part of the economy, the pandemic put a dent in the world of investor financing, which includes hard-money lenders and private-money investors. But Thompson and Josh Craig, chief revenue officer, see the sector coming back strong.
Not only that, but both also predict a shift in housing trends overall, thanks to these last few months of folks having to live in close quarters — such as 1,100-square-foot units downtown.
“I think we’re seeing another kind of surge away from the inner cities, away from apartments and into single-family rental properties,” Craig says. “We’re seeing people working from home and kids and dogs and working spouses on top of each other.”
As for fix-and-flip properties, forbearance programs and moratoriums on evictions are artificially propping up the market, he says, adding, “I think a lot of investors are on the sidelines right now keeping their powder dry and waiting to see what happens.”
Hard money comes easier
Tony Fields is locked and loaded. The co-owner of A&T Property Management has been flipping houses since 1999 and typically turns between 12 and 24 properties a year. He currently has seven houses on the market and three under construction.
Unlike commercial lenders, such as banks, hard-money lenders or private real-estate financiers charge higher interest rates. The interest rate on a conventional 30-year home mortgage currently hovers around 3%, while house-flipping investors can pay up to 10% for loans, with interest-only payments and a balloon after 13 months.
Moreover, a commercial lender, such as a bank, combs over a buyer’s finances, such as credit scores and income-to-debt ratio, while specialty mortgage companies look at loan-to-value positions, generally lending up to 70% of a property’s value after rehab costs.
Fields says he can get a 100% loan on a property’s ARV, or average renovated value, at 9% interest with interest-only payments for 13 months.
Noting that his sources are evenly split between hard-money companies and private lenders, he says private investors provide an advantage over direct or hard-money lenders because the former’s process is faster and less complicated.
“I have a private investor I can go to right now, and he just cuts a check because he trusts what I’m doing,” he says.
‘The market’s gotten comfortable’
Darren Stroud, who manages a Finance of America branch in Greenville and one in Spartanburg, says that because the company is part of Blackstone, the massive private-equity firm with nearly $4 billion in net income last year, “we can withstand a few months of the storm.”
Nationwide, the hard-money lender originated $2.4 billion last month alone, Stroud says, adding that he envisions his local numbers this year doubling over 2019, despite the pandemic.
“Our funding ability is just bigger than most companies,” he says. “Your smaller companies’ lending ability might be a little tighter.”
As for Lima One, Kelly Shealy, a real estate agent with Great Homes of the Upstate in Greer, recalls a situation last year with a client in Atlanta whose hard-money lender didn’t come through quickly enough; time is money.
“A lot of times, with hard money, you’re shooting for a 14-day close, but Lima was able to get it done,” he says. “They busted it. They had some hoops they had to jump through, but they got it done in about seven days.”
Rick Stroud, owner and broker of Great Homes of the Upstate and no relation to Darren, echoes the others who, overall, see real estate investors rebounding.
“They’re back on and willing to loan to investors for rehab projects,” he says. “The market’s gotten comfortable with it again. It’s back on and probably a little bit higher now.”
Volume of single-family rental properties in Greenville
- 157,000 total single-family properties in Greenville County.
- 30,000 of them are non-owner-occupied.
- That accounts for roughly 20% of housing stock in Greenville.
- 2,100 single-family properties listed for sale in Greenville County.
- Of those, 200 are being sold by people who purchased the property within 24 months.
Source: Propstream
Private money lenders by the numbers
Greenville’s 50 private money lenders serve the city with a median amount loaned of $298,215. Interest rates on loans issued to investors here average 9.9%, with a 3.3% origination fee and a typical term of 11 The mean loan includes a 3.3 percent origination fee. Lenders offer on average a 71% LTV [Loan to Value] on loans in Greenville.
Source: HardMoneyHome.com.
What is a hard-money lender?
Hard-money lenders are private companies (or investors) offering asset-based loans that borrowers secure with real property. These lenders can distribute capital more quickly than a bank, but their interest rates are typically higher than those of institutional lenders, the risks are higher, and the loan terms are shorter.
What is a private-money lender?
Private-money lenders are essentially the same as hard-money lenders, but with one very important distinction — private-money lenders control their own capital and do not rely on a third party as part of the approval process.
Similarities
Private-money lenders and hard-money lenders are both suitable for borrowers who cannot wait the typical 30-45 days that a mortgage loan takes to be approved. Both focus on a borrower’s assets and collateral, rather than on financial profiles or credit scores. Likewise, the borrower’s real estate investing experience typically plays a significant role.
Source: Direct Lending Partners
