Hard money lenders in Los Angeles may be having a blooming time ahead of them this year. Prices are becoming even pricier whilst demand remains high and becomes higher while people lose their homes, move in, or move around. So investors who want fast money or who are shunned by banks go to their alternative friend: the hard money lender.
The situation in LA
The State Supreme Court in California recently put a stop on a building project meant to offer a new, suburban community outside of Los Angeles. The reason? The development isn’t green enough. This news was a scandal for more than one reason. Readers complained that people who were looking for affordable housing now had even less of it due to the fact that ‘big voices’ in Los Angeles determined that certain areas were not ‘green’ enough. After all, how much room does LA really have? People who made this decision, the critics complained, had their housing and showed little sensitive to t hose who had none. Readers also complained for another reason. At least one survey showed that this latest decision could cause prices to increase by 12% due to lack of supply. Los Angeles housing prices are expensive enough!
This opinion piece in Reason sums the issue up:
The California Supreme Court’s decision late last month to reject a nearly 6,000-page environmental report for a proposed development north of Los Angeles will not only delay or possibly kill a new suburban community. It will make it much more difficult for developers anywhere in California to build large-scale housing projects…
Opponents can always make a fair argument that any proposed project warms the planet (or harms a stickleback or some other fish or species), so every project potentially can drag on through years of legal challenges. The obvious result: fewer housing projects of all sorts will be built, and those that are built will have additional costs.
How this affects hard money lenders in Los Angeles
For private money lenders in Los Angeles, the situation has mixed results. On the one hand, wickedly enough, this is a delightful situation because it means more clients. A demand for housing and unaffordable prices inextricably means more potential borrowers turning to banks and a large majority of them being turned away due to increasingly restrictive selection processes. A great percentage of borrowers will seek out alternative lending sources. And this includes hard money lenders. On the other hand, this growing priceless may also deter investors from getting into debt in the first place. And the massive interest rate of hard money lenders (double that of the radiation mortgage) and the still prevalent low loan-to-value ratio for the borrower’s collateral makes hard money loans even less attractive…
Consider this too: the Federal Reserve recently raised their rates. The rise is insignificant – it is 0.25 percent, an increase from what was essentially zero – but when you think of the private lender’s already high interest rates topped to high payments, every extra bit added – no matter how small – counts. It also makes it harder for the borrower to repay.
Redfin, a residential real estate company that provides web-based real estate database and brokerage services, observed that likely less people able to pay coming years resulting in an epidemic of defaults. Hard money lenders take note!
It seems to be a mixed year head for Los Angeles money lenders. One the one hand, there is the need for housing and ongoing construction to meet the demand. That is promising. On the other hand, there are the already knife-sharpened prices that are whittled further by the Fed’s new rate. Default has been high; default is predicted to be higher still.
What can Los Angeles money lenders do?
Practice caution, do their research, know their real estate, review client background, scrutinize collateral, and be as careful as possible.
To be a hard money lender in Los Angeles is risky and exciting. What you make of it is up to you.