Much like the rest of the world, hard money lenders in Long Island have had quite an up and down year. In fact, nearly every part of the industry, from borrower credit profile to asset eligibility, advance rates, interest rates, and rehab fund disbursements have all been affected.
In the spring of 2020, Long Island Hard Money Lenders radically changed their lending criteria. Many lenders stopped lending all together, nearly freezing the fix and flip and distressed buying markets. One of our most notable achievements here at West Forest Capital is that we never – not even for one day – stopped offering our products. In our mind, we made a commitment to our clients and the Long Island market, and we were going to stick with it. (As an aside, this dedication grew our business nearly 2x this year).
Percentage of Purchase Price and Rehab Funds
After the shock of the initial crisis passed, in May and June, some of the national lenders that operate on Long Island did return. Advance rates were significantly different, however, with the most experienced borrowers getting 80% and those with less experience from 65-70% (later, in the fall of 2020, those numbers moved by about 5%). Because disbursing rehab funds creates value and does not pose much risk for lenders, the percentage of rehab funded never changed substantially, always hovering at 90%-100% both pre-COVID and post-COVID. One other note on the structure of the loans – due to the macro market uncertainty that is still very much present, some lenders have required interest reserves (upwards of 6 months) to be included as part of the deal. Interest reserves lower the total amount the borrower receives at closing, but in exchange, the borrower doesn’t have to pay interest on the loan.
Expanded Location Lending
As COVID greatly increased demand for the suburbs, Long Island was one of the biggest beneficiaries. Long Island hard money lenders reacted to this change in demand and increased the areas that they cover. For example, if previously lenders where comfortable with Nassau County but did not lend in all areas of Suffolk County, that has now changed as migration from NYC and areas nearby has accelerated. In fact, we are seeing significant increasing demand for hard money loans in the region between Smithtown and the Hamptons.
Immediately as COVID hit and lenders became more conservative in their underwriting criteria, interest rates were also raised by 1-2%. However, now, more than 6 months removed from the depth of the crisis the market has shifted rates back to their original pre-COVID levels of 9-11% for single family fix and flip. For mixed use, commercial, and industrial properties rates remain slightly higher than pre-COVID, at 11-12%.
Pre-COVID minimum FICO scores were often 620 or 640. Now, many lenders have changed their minimum requirements to either 650 or 660. (it’s worthwhile to note that West Forest Capital does not have a minimum FICO). Long Island hard money lenders are now also doing a deeper dive on the underlying borrower and their credit profile. Tax returns and bank statements have been more frequently requested and reviewed. Unless very experienced in real estate, some lenders have required the borrower be employed outside of their real estate business (we do not require this).
Long Island hard money lenders have changed their underwriting “box” in terms of what properties they are willing to lend on. Pre-COVID, lenders were much more lax, lending on industrial and commercial properties, in addition to fix and flip. Post-COVID we are seeing a lot more lenders stop funding commercial and industrial asset types, and even mixed-use. In fact, as a lender that continues to lend on all the above property types, we are seeing a huge uptick in loan requests, particularly on mixed-use buildings.
Where we can help
As mentioned above, West Forest Capital can lend on any property type – because we are set up as a partnership, we do not have restrictions. We also do not utilize an underwriting “box” and can fund unusual properties that cannot be funded by other hard money lenders. Even on these types of properties, however, our rates remain reasonable and our communication and service second to none! Call us (212-537-5833) with your deal scenario and see how we can help right away.